Credit Suisse Borrows $54bn from Central Bank to Stem Global Crisis

The headquarters of the troubled Swiss banking giant in Zurich. Credit: Rene Nueesch, CC BY 3.0/Wikipedia

Banking giant Credit Suisse secured a deal on Wednesday to borrow up to $54bn from the Swiss central bank to shore up its finances as authorities are trying to avert a global financial meltdown.

Shares in Credit Suisse fell 24 percent on Wednesday after it said it had found “weakness” in its financial reporting. This prompted a general sell-off in European markets, and fears of a broader financial crisis.

The bank called the loan a “decisive action to pre-emptively strengthen its liquidity.”

“This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the bank said in a statement.

In addition to the loan from the central bank, Credit Suisse also said it repurchased billions of dollars of its own debt to manage its liabilities and interest payment expenses. The offer covers $2.5 billion of US dollar bonds and €500 million ($529 million) of euro bonds.

Credit Suisse is a global systemically important bank

The venerable but troubled bank, founded in 1856, is one of the biggest financial institutions in the world and categorized as a “global systemically important bank,” along with just 30 others, including JP Morgan Chase, Bank of America and the Bank of China.

Credit Suisse has half-a-trillion dollars in assets and more than 50,000 employees around the world. The failure last week of Silicon Valley Bank and Signature, two much smaller regional lenders, shook investor confidence around the world.

Credit Suisse is “much more globally interconnected, with multiple subsidiaries outside Switzerland, including in the US,” wrote Andrew Kenningham, chief Europe economist at Capital Economics.

Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 financial crisis and its problems have raised serious doubts over whether central banks will be able to sustain their fight against inflation with aggressive interest rate hikes.

Asian stocks followed Wall Street’s tumble on Thursday and investors bought gold, bonds and the dollar. While the bank’s announcement helped trim some of those losses, trade was volatile and sentiment fragile.

“It does help. It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation — and what is it going to be?” said Damien Boey, chief equity strategist at Barrenjoey in Sydney told Reuters.

CNN’s chief business correspondent Christine Romans says this is not a repeat of the 2008 global financial crisis, because banks aren’t carrying toxic assets.

“They’re not allowed to anymore,” Romans explained. “They don’t have all that garbage, that junk on their balance sheets anymore. They have to have better capital set aside, and the big banks have to undergo stress tests.”

Credit Suisse faced a string of scandals

The BBC notes Credit Suisse has faced a string of scandals in recent years, including money laundering charges and other issues.

It lost money in 2021 and again in 2022 – its worst year since the financial crisis of 2008 – and has warned it does not expect to be profitable until 2024.

Shares in the firm had already been severely hit before this week – their value falling by roughly two-thirds last year – as customers pulled funds.

The bank’s disclosure on Tuesday of “material weakness” in its financial reporting controls renewed investor concerns.