According to sources familiar with the matter Swiss authorities and Credit Suisse Group AG have been discussing ways to stabilize it after comments from its largest shareholder and wider financial market jitters that led to a stock plunge on Wednesday.
According to a late Wednesday statement, the central bank of Switzerland and the financial regulator confirmed that the bank would receive a liquidity backup if necessary. Credit Suisse met the requirements of its regulator for liquidity and capital.
Leaders of the firm and officials from government had previously discussed possible measures such as a public support and backstop. According to sources familiar with the matter, there were two options: a separation from the Swiss unit, and a long-shot coordinated tie-up with the larger Swiss rival UBS Group AG. However, it is unclear if these steps will be implemented. Two people confirmed that the Swiss government had also suggested the possibility of purchasing a stake in Credit Suisse, as part of a capital rise if necessary.
Although scenario planning has been ongoing for some time, it has become more urgent after the firm’s shares fell to a record low. The bank’s cost to insure its debt has reached crisis levels. According to people, the lender had previously asked the Swiss central banking and regulator Finma to make public statements of support. This request was heeded by authorities at half past eight p.m. local.
Spokespeople from Credit Suisse, UBS, and Swiss National Bank declined comment. The request for comment was not received by the nation’s finance ministry.
Credit Suisse’s stock plummeted as high as 31% Wednesday. Some of its bonds also dropped to levels that indicate financial distress. The Saudi National Bank stopped increasing its stake due to regulatory restrictions. All European lenders fell as investors rushed to avoid banking risk following the turmoil caused by the collapse of Silicon Valley Bank.
Credit Suisse stock trading in the US has seen more than half of its peak losses erased after Finma’s statement and that by the central bank.
Ulrich Koerner, chief executive officer, preached patience Tuesday and stated that the bank’s financial situation is sound. He cited the firm’s liquidity coverage ratio as an indicator that the bank can manage more than one month of outflows during times of stress. At Wednesday’s conference, Chairman Axel Lehmann stated that government assistance is “not a topic” and that the bank’s efforts to recover profitability are not comparable to the serious liquidity problems facing smaller US lenders.
Ralph Hamers, CEO of UBS, declined to answer “hypothetical questions” about Credit Suisse on Wednesday and said that he is “focused on our strategy.”
The second-largest lender in Switzerland, with its roots dating back to 1856 has suffered a string of scandals, leadership changes, and legal problems over the past several years. Last year’s loss of 7.3 billion Francs ($7.9 Billion) wiped out profits from the previous decade. The bank’s second strategy pivot in the same number of years failed to win investors over or stop client outflows.
As concerns grew about the company’s financial health, clients pulled out more than $100 billion in assets during the last three months. The outflows continued even after the 4 billion franc capital raising.
Morningstar analyst Johann Scholtz stated Wednesday that Credit Suisse’s funding costs are so high that it needs to raise additional capital or go bankrupt. Another rights issue could be required by the bank, or the bank could go bankrupt. In this scenario, its business lines including the Swiss unit and asset manager divisions as well as wealth management could be sold or listed separately.
The Swiss unit lends money to national corporations and manages the wealth of wealthy individuals. It has been a relative refugee from instability. It is the only division of Credit Suisse that has been profitable in the last three years. In 2022, it earned 1.5 billion francs pretax income.