Credit Suisse shares rally after $54bn lifeline from Swiss central bank

New York/London: Credit Suisse shares rebounded sharply on Thursday after the lender revealed plans to borrow up to SFr50 billion ($54 billion) from the Swiss central bank and buy back about SFr3 billion of its debt in an attempt to boost liquidity and calm investors.

The Swiss National Bank had said on Wednesday it was willing to provide a liquidity backstop following a plunge of as much as 30 percent in the troubled lender’s stock.

That sell-off came after the chair of Saudi National Bank, a major Credit Suisse shareholder, ruled out any further investment. It also followed turbulent trade in global banking stocks in the wake of Silicon Valley Bank’s collapse.

In a statement on Thursday, Credit Suisse said it had taken the decision “to pre-emptively strengthen its liquidity” by borrowing the funds from the Swiss central bank under a loan facility and short-term liquidity facility.

Credit Suisse shares opened up more than 20 percent in Zurich, although they had given up some of those gains by the early afternoon and were 17 percent higher.

The bank plans to make a cash tender offer for 10 US dollar-denominated senior debt securities worth up to $2.5 billion and four euro-denominated senior debt securities worth up to €500 million. The offers will expire on March 22.

Chief executive Ulrich Körner said the measures “demonstrate decisive

action to strengthen Credit Suisse as we continue our strategic transformation”. Körner’s restructuring has included

selling off a part of Credit Suisse’s investment bank and cutting thousands of jobs.

“My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs,” added Körner, who was appointed chief executive in July.

Yields on the bank’s bonds dropped slightly on the news, while spreads on its five-year credit default swaps — which indicate investor bearishness — fell from 980 basis points to 898 bps, having started the month at 350 bps.

Credit Suisse’s dollar bond due in 2027 gave up early gains to fall by about 8c to 64 cents on the dollar. It had traded at around 78 cents on Tuesday, the latest crisis erupted.

UK chancellor Jeremy Hunt said he and Bank of England governor Andrew Bailey were following the situation “very closely”. “The news we’ve heard from the Swiss authorities this morning is encouraging,” he told Sky News.

RBC analyst Anke Reingen said Credit Suisse’s stronger liquidity position along with the backstop provided by the Swiss National Bank and the Swiss Financial Market Supervisory Authority would help the bank regain trust from its investors.

The “measures taken should provide some comfort that a spillover to the sector could be contained, but the situation remains uncertain”, she added.

Analysts at JPMorgan said the latest developments at the scandal-plagued Credit Suisse meant the “status quo was no longer an option”.

“We see a resolution scenario as most unlikely in our view and more likely an intervention with the... option of a takeover as the most likely scenario especially by UBS,” wrote Kian Abouhossein.

The move is the latest attempt by Credit Suisse to regain investor confidence after a series of scandals and setbacks rocked the Swiss bank and pushed its stock price to a record low.

Credit Suisse shares closed down 24.2 percent on Wednesday, pushing its market value below SFr7 billion. Shares in the bank, which raised SFr4bn of capital just a few months ago, are down 39 percent this year and 85 percent over the past two years.

Wednesday’s sell-off came as banks in Europe and the US were still reeling from the closure of SVB, the biggest US bank failure since 2008. Its implosion came after long-dated Treasury bonds it had invested in collapsed in value.

Investors said Credit Suisse’s problems were a reminder that Europe’s banks also had large bond portfolios, the paper value of which has been hammered by rising interest rates.

For Credit Suisse, the share price drop added to what has already been a challenging week. On Tuesday, the bank revealed that its auditor, PwC, had identified “material

weaknesses” in its financial reporting controls, leading to the delay of the publication of its annual report.

On Wednesday, Saudi National Bank chair Ammar Alkhudairy said “the answer is absolutely not” when asked if SNB would be open to providing capital to Credit Suisse. SNB bought a 10 percent stake in Credit Suisse last year.

He said owning a large share of the bank would result in unwanted regulatory requirements, though he added he supported Credit Suisse’s restructuring plan and did not think it needed more capital.