The crisis-ridden Credit Suisse can borrow up to CHF 50 billion from the Swiss National Bank to support liquidity if necessary. This was announced by the loss-plagued Swiss bank on Thursday night. With the agreement on this credit line, it is taking an option that the Swiss National Bank (SNB) had granted it only the evening before. The borrowing is fully secured by first-class assets.

Johannes Ritter

Correspondent for politics and economics in Switzerland.

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In addition, CS is buying back bonds with a total value of up to $3 billion. With these measures, the bank wants to regain the lost confidence, which is reflected in the dramatic crash of CS shares on the stock market.

On Wednesday alone, the share price had temporarily collapsed by up to 31 percent after the president of major shareholder Saudi National Bank ruled out further capital injections for the bank. The prices of CS bonds also fell dramatically. "These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation," said CEO Ulrich Körner in the press release. And: "My team and I are determined to move forward quickly to create a simpler and more customer-focused bank." The aid manoeuvre was well received on the stock exchange: At the start of trading, CS's share price shot up by 33 percent to 2.25 Swiss francs.

Homemade scandals, imbalances and failures

The Swiss central bank's bailout operation, which is working shoulder to shoulder with the Swiss Financial Supervisory Authority (FINMA), is the largest of its kind for a Swiss bank since the 2008 financial crisis. At that time, the CS local rival UBS was saved from collapse with aid in the double-digit billions, some of which came directly from the state. However, this rescue is not directly comparable to the case of CS: UBS had the problem of undercapitalization at the time. Credit Suisse, on the other hand, repeatedly points out that it is solidly financed in view of a core capital ratio of 14.1 percent.

Of course, it has not been able to calm the markets so far. It can also be assumed that customers have reacted to the never-ending negative headlines and price losses and have withdrawn further funds. In the fourth quarter of 2022 alone, the bank, which is one of the largest asset managers in the world, lost customer funds of CHF 111 billion.

The uncertainty has been exacerbated by the recent turmoil in the US banking market. The SNB and Finma even refer to this in their statement on Wednesday evening, stressing that there is no evidence of a direct risk of contagion for Swiss institutions. In Switzerland, all banks would have to maintain capital and liquidity buffers that meet or exceed the minimum requirements of the Basel standard. In addition, Credit Suisse meets the special capital and liquidity requirements placed on systemically important banks. "This allows negative effects of major crises and shocks to be absorbed."

At the same time, the SNB announced that it would provide liquidity to Credit Suisse if necessary. This offer, which is tantamount to a kind of insurance, was gratefully accepted by the bank seven hours later.

Net loss of 7.3 billion Swiss francs

CS has put itself in a predicament through numerous home-grown scandals, imbalances and failures that can be traced back to inadequate risk management. The clean-up, combined with operational setbacks, resulted in a net loss of 2022.7 billion francs in 3, while other banks made billions in profits. The loss of confidence is reflected in the bank's stock market valuation, which is now only CHF 7 billion. By way of comparison, UBS weighs in at almost 60 billion Swiss francs.

According to financial market expert Peter Viktor Kunz, professor of business law at the University of Bern, the Swiss central bank had no alternative but to support Credit Suisse: "It's about sending a psychological signal to restore or at least secure customer confidence," Kunz said in an interview with the F.A.Z. If panic arises among bank customers because of falling stock market prices and they subsequently withdraw funds on a large scale, this could create a liquidity problem in the short term. But now Kunz is cautiously giving the all-clear: "Small bank customers are likely to be reassured by the indirect state guarantee of the highly respected central bank."

With its aid manoeuvre, however, the SNB certainly also wanted to prevent a panic surrounding CS from spreading to other banks and financial centres in Europe and the world. "There is a risk of a conflagration in the financial scene," Kunz said. Against this background, too, the SNB wanted to set an example for the financial centre and stressed that Swiss banks were not directly affected by the problems in the American banking sector.