Analysis: Swiss Blank Cheque Wins Some Time For Credit Suisse  

 

  • Switzerland's radical pledge to bankroll Credit Suisse Group AG has won the embattled lender the chance to resurrect itself from an almost complete collapse in confidence that rattled global markets.
  • The move, tantamount to a blank cheque from one of the globe's leading central banks, is reminiscent of the promise by European Central Bank to do whatever it takes to support the euro during the financial crash more than a decade ago.
  • In the years that followed, the ECB and other central banks printed billions of euros, a free-money era that spawned a global rally in asset prices. A reversal of low rates to stem rampant inflation has forced a risk rethink and exposed the vulnerability of firms such as Credit Suisse.
  • The Swiss National Bank and the country's financial regulator, FINMA, in a joint statement on Wednesday night sought to draw a line under months of speculation about the bank's future that had culminated in a 30% drop in its stock price on Wednesday.
  • In the early hours of Thursday, Credit Suisse said it was taking "decisive action" to strengthen its liquidity by exercising its option to borrow from the Swiss National Bank up to 50 billion Swiss francs ($54 billion).
  • The move to support the group is designed to stem a crisis of confidence in Switzerland's second-biggest lender resulting from years of scandals and losses. It is one step short of a fully-fledged bailout like those seen during the financial crash more than a decade ago.
  • However, it leaves the central bank, which prints the Swiss franc and underpins the Alpine nation's economy, firmly on the hook should confidence in the bank resume its spiral. Meanwhile, Credit Suisse still needs to push ahead with a radical restructuring it undertook in October to restore profitability.
  • In their joint statement on Wednesday, the Swiss National Bank and financial regulator said the "current turmoil in the U.S. banking market" would not have any spillover for Switzerland's banks.
  • The collapse of Silicon Valley Bank in the U.S. on Friday prompted a widespread flight to quality that saw the bigger lenders that are deemed more solid, including Swiss rival UBS Group AG, attract deposits, deepening Credit Suisse's woes.

(Source: Reuters)