On the Brink of a New Trend: Credit Suisse Receives 50 Billion Swiss Franc Bailout From Swiss National Bank
Credit Suisse has experienced a loss of confidence in the financial institution’s health following a significant drop in its shares’ value this week. Over the past five days, Credit Suisse shares have fallen 24.34% against the U.S. dollar, eroding trust amid fears about the global banking system. On Wednesday at around 9 p.m. (ET), Credit Suisse announced that it was strengthening its liquidity by borrowing 50 billion Swiss francs ($54 billion) from the Swiss National Bank (SNB). As concerns about the world’s banking system continue to spread, bailout measures are starting to emerge in the U.S. and abroad.
Emergency Measures to Stabilize Global Banking System Emerge as Credit Suisse and Other Banks Face Uncertainty
Credit Suisse’s stock hit a record low on Wednesday after the Saudi National Bank declined to assist the Zürich, Switzerland-based bank. The bank’s troubles have fueled fears of bank contagion after three major U.S. banks collapsed last week. Some market strategists predict that Credit Suisse will be the next to fail, and the actual value of Credit Suisse’s share price has been called into question. After a tumultuous day on Wednesday, Swiss officials announced that they were working to stabilize the financial institution. Both the Swiss National Bank and FINMA issued statements of support.
JUST IN: Swiss National Bank will bail out Credit Suisse if needed.
— Sasha Hodder (@sashahodler) March 15, 2023
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Shortly after 9 p.m. Eastern Time, Credit Suisse issued a press release announcing that it had taken “decisive action to pre-emptively strengthen liquidity.” Credit Suisse stated that it intended to exercise the bank’s option to borrow up to CHF 50 billion from the Swiss National Bank (SNB) under a Covered Loan Facility, as well as a short-term liquidity facility, both of which would be fully collateralized by high-quality assets. The company also announced public tender offers for U.S. dollar-denominated senior debt securities and euro-denominated senior debt securities, with an expiration date of March 22, 2023, subject to terms and conditions.
“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” the bank’s CEO Ulrich Koerner said in a statement. “We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.”
Credit Suisse get a $54,700,000,000 bailout.
This is more than the GDP of the majority of the world's countries and should keep them going for a few more days.— David Kurten (@davidkurten) March 16, 2023
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The SNB bailout of Credit Suisse marks the second major bank bailout in less than a week, following the bailout of Silicon Valley Bank (SVB) and Signature Bank (SNBY) by the U.S. Federal Reserve, Treasury, and Federal Deposit Insurance Corporation (FDIC). However, U.S. politicians are emphasizing that these emergency measures are not comparable to the bank bailouts of 2008.
During the Great Recession, bank bailouts were widespread, starting with Bear Stearns’ injection of capital in March 2008 in the U.S. and then spreading abroad. In the U.K., the Royal Bank of Scotland and Lloyds TSB received government assistance in October 2008, while in Iceland, the government nationalized the country’s three largest banks that same month.
At that time, other countries, including Germany, France, and Switzerland, implemented various bailout measures during the 2008 financial crisis. The U.S. allowed the troubled investment bank Lehman Brothers to fail, but decided to bail out Fannie Mae, Freddie Mac, and AIG in 2008. Credit Suisse was one of the few banks that managed to survive the impact of the 2008 economic crisis without a bailout from the Swiss central bank.
While many banks sought bailouts during the Great Recession, Credit Suisse raised capital from the Qatar Investment Authority and other sources by selling convertible securities and initiating a public share offering. Although the current macroeconomic environment is not exactly the same as in 2008, some experts predict that this economic downturn could be worse. This time around, Credit Suisse’s hand was forced, and the bank had to borrow 50 billion Swiss francs or possibly face the same fate as SVB and SNBY.
What do you think will be the long-term impact of Credit Suisse’s bailout on the global banking system? Share your thoughts in the comments section below.
