After its shares took a nosedive earlier this week, Credit Suisse secured a lifeline worth more than $50 billion from the Swiss National Bank (SNB) as a proactive measure to boost its liquidity.
The investment firm’s announcement on March 16 was swiftly followed by a resurgence of its shares, which saw a gain as high as 33% before they settled at around 17%.
Credit Suisse ran into trouble after investor confidence tanked in the aftermath of two U.S. banks, Silicon Valley Bank and Signature Bank, going under after bank runs. This prompted the SNB to offer rescue funds as support.
Credit Suisse pledged to use the lending facility to strengthen its liquidity, backed by high-quality assets posted as collateral to the SNB.
“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders. … My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs,” CEO Ulrich Koerner said in the release.
While the liquidity line has been viewed as a temporary solution, it will provide Credit Suisse with additional time to find a more permanent fix. This may include a potential breakup or sale of major parts of the bank, as suggested by investors and analysts.
While this move may have pulled Credit Suisse out of a tailspin, analysts remain cautious about its prospects in the current market.
These doubts have led five major banks, including the German Deutsche Bank and the French Société Générale, to restrict trades with Credit Suisse, per unconfirmed reporting by Reuters.
Nonetheless, Credit Suisse has taken steps to differentiate itself from the recently failed banks by emphasizing that it is “fully hedged” for interest rate fluctuations, per its media release. It also said that it would buy back some debt securities worth $2.5 billion and €500 million ($530 million), respectively.
Credit Suisse suffered massive outflows of customer deposits in recent months but has maintained key capital ratios and ample backup cash. Its average liquidity coverage ratio had improved to 150% on March 14 from 144% at the end of 2022.
The lifeline of liquidity from SNB aims to reassure Credit Suisse’s customers and other banks that it has ample funds on hand.
Financial institutions across Europe and in the U.S. have taken similar measures to restore investor confidence since last week.
For instance, when Silicon Valley Bank went under, the British government and Bank of England brokered the sale of its U.K. arm to HSBC for over $1.2 million on March 13.
In the U.S., the Treasury Department and the Federal Reserve held an emergency meeting on March 12 to guarantee all of the deposits of account holders of the two failed banks. The move, the two entities said in a joint statement, was “to protect the U.S. economy by strengthening public confidence in our banking system,” per The Dallas Express.
At the same time, during a meeting with the Senate Finance Committee on March 16, Treasury Secretary Janet Yellen testified that the insured deposits did include accounts with balances above the $250,000 limit usually covered by FDIC insurance.
As the various legislative proposals are presently being considered in Congress to shore up the ongoing economic uncertainties, the Fed will meet March 21-22 to decide whether to raise interest rates.
Only fools trust government officials to disclose all the facts.
FDIC – Federal Deposit Insurance Corporation
From FDIC Meeting held 4 months ago…
FDIC Advisory Member Herring:
“…So, I think that your strategy should be to disclose as much as possible to people who professionally need to know about it…
…But I don’t think that you have much hope on reaching a public that doesn’t have a professional need to know….”
(public getting their information in Tweets)
FDIC Advisory Member Cohn:
“I completely agree with that. I almost think you’d scare the public if you put this out.
‘Why are they telling me this? Should I be concerned about my bank?’…
…I think that you have to think about the unintended consequences of taking a public that has more full faith and confidence in the banking system than maybe the people in this room do.”
(Laughter around the boardroom table)
“That we want them to have full faith and confidence in the banking system…
There’s a select crowd of people that are in the institutional side…they’re going to find a way to understand this…
…But I would be careful about the unintended consequences of starting to blast too much of this out to the general public.”
Video footage of FDIC at…
“FLASHBACK: G20 Rules Make Bank Bail-ins a Reality” at the Corbett Report
Author and financial researcher Ellen Brown gives an excellent overview of the banking system for the average American.
Sunday March 19 – USA Today
Close to 190 banks could face Silicon Valley Bank’s fate, according to a new study
This story did not address the reckless behavior of these banks that got them into this mess in the first place. Horrible reporting. Lies by omission.
HTM (Held-to-Maturity) bonds
Debt Securities (Bonds) are typically issued by corporations or governments (including local cities). The Bond Market is HUGE…much, much larger than the Stock Markets.
Banks, pension funds, retirement accounts, and insurance companies often own bonds.
A Bond is a promise to pay a certain amount of money in the future at “Maturity” (usually based on an interest rate.)
Entities which had purchased Bonds previous to 2022 have been holding bonds which paid a very low interest rate at “Maturity”.
Bank accounting works with HTM (Held-to-Maturity) bonds.
If banks tried to sell their previously purchased bonds, they would take a big loss because current interest rates are much higher than a few years ago.
Bank accounting classifies HTM (Held-to-Maturity) bonds in a special category so that it does not show a loss on their financial report.
But the banks also cannot sell these bonds in the event that they need cash.
This is one of the reasons that banks are stressed.