World News | Credit Suisse shares soar after central bank offers lifeline

GENEVA, March 16 (AP) – Shares of Credit Suisse soared Thursday after the Swiss central bank agreed to lend as much as 50 billion Swiss francs ($54 billion) to the bank, boosting sentiment toward the country’s second-largest lender. confidence and allay concerns about the international financial system. Two U.S. banks collapsed.

Credit Suisse announced the agreement before the Swiss stock market opened, with shares rising as much as 33 percent before closing 25 percent higher at 2.13 francs in midday trade.

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It was a sharp turnaround from the previous day, when news that the bank’s largest shareholder would not pump more money into Credit Suisse sent its shares plunging 30 percent, dragging down other European lenders.

European bank stocks also rose slightly on Thursday.

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The Swiss National Bank said on Wednesday it was ready to support Credit Suisse as it meets higher capital and liquidity requirements imposed on “systemically important banks,” adding that problems experienced by some U.S. banks would not “constitute The immediate risk of “contagion” to Switzerland.

In short, it’s a trust-building effort.

“Swiss regulators definitely hope that’s enough,” said Russ Mold, investment director at AJ Bell, an online investing platform.

“They don’t want anyone to be the guy sitting in a dark room or a dark movie theater yelling about fire because that’s what drives people to run for the exit.”

“So what they’re trying to do is say to depositors, your money is safe, we’re going to back you, we’re going to back the banks, provide liquidity,” he said.

“They’re trying to say, move on. There’s nothing to see here.”

Credit Suisse, which was plagued by problems long before Bank of America collapsed, said on Thursday that the central bank loan would give it time to complete a restructuring aimed at creating a “simpler, more focused bank”.

“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to create value for our clients and other stakeholders,” Chief Executive Ulrich Koerner said in a statement.

Turmoil in the banking sector casts a pall over Thursday’s European Central Bank meeting. Before the chaos erupted, ECB President Christine Lagarde had said it was “very likely” the bank would raise interest rates by a sharp half a percentage point to combat stubbornly high inflation.

After European bank stocks slumped on Wednesday, some analysts said the central bank may fall back to raising interest rates by 25 basis points.

Higher rates fight inflation, but in recent days have raised concerns that they could take a hidden toll on bank balance sheets.

Central banks in the U.S. and Europe moved quickly to restore confidence in the banking system after Silicon Valley Bank collapsed last week, the second-largest bank failure in U.S. history.

U.S. authorities said on Sunday they would guarantee all deposits at California-based Silicon Valley Bank and the smaller New York Signature Bank, ensuring that people would not be harmed by bank failures.

The Fed also announced additional funding to ensure other banks can meet depositors’ needs.

The British government and the Bank of England said on Monday they had facilitated the sale of Silicon Valley Bank’s UK arm to HSBC, one of Europe’s largest lenders, to ensure the bank’s customers had access to their funds.

John Giff, former deputy governor of the Bank of England, said the quick response was unlike what happened 15 years ago when the global financial crisis erupted.

At the time, U.S. authorities allowed the investment banking giant Lehman Brothers to fail.

“That’s what panicked the whole market because they didn’t support it,” Giff told the BBC.

“So what we saw overnight was the SNB saying, no, we’re not going to let it fall into a disorderly collapse.”

“I don’t know what the future holds for Credit Suisse, but so far they are standing,” he added. “And it looks like the SNB will ensure that it has enough time to reschedule future affairs.”

Banks are under pressure after interest rates rose rapidly after a prolonged period of historically low rates.

Sascha Steffen, a professor of finance at the Frankfurt School of Finance and Management, said banks need to take on more risk in order to improve their return on investment, and that some banks “do this more prudently than others”.

As a result, some banks are now facing a shortage of “liquidity”, meaning they cannot sell assets fast enough to satisfy depositors.

Credit Suisse shares slumped to record lows on Wednesday after the National Bank of Saudi Arabia said it would not inject capital into the Swiss lender to prevent investors from taking more than 10 percent of the Swiss bank when regulations come into effect.

Credit Suisse also reported on Tuesday that by the end of last year, managers had identified “significant deficiencies” in the bank’s internal controls over financial reporting. That has raised fresh doubts about the bank’s ability to weather the storm.

Its shares have suffered a long and sustained decline: they are now trading at just over 2 francs, having been valued at more than 80 francs ($86.71) in 2007.

The Swiss bank has struggled to raise money from investors and has launched a new strategy to overcome a series of problems, including bad bets by hedge funds, repeated top management reshuffles and a spying scandal involving Zurich rival UBS .

Andrew Kenningham, chief European economist at Capital Economics, said Credit Suisse was “much more concerned about the global economy” than failed mid-sized U.S. banks.

It has subsidiaries outside Switzerland and handles transactions for hedge funds.

The troubles “raise again the question of whether this is the beginning of a global crisis or just another idiosyncratic case,” Kenningham said in a report.

“Credit Suisse is widely regarded as the weakest link among the big European banks, but it is not the only one that has struggled with weak profitability in recent years.”

European finance ministers said this week that their banking systems had not been directly affected by the collapse of US banks.

After the global financial crisis following the collapse of U.S. investment bank Lehman Brothers in 2008, Europe strengthened banking safeguards by handing over oversight of large banks to central banks, analysts said.

Credit Suisse’s parent bank is not regulated by the EU, but it has entities in several regulated European countries.

As one of 30 so-called global systemically important banks (G-SIBs), Credit Suisse is bound by international rules requiring it to maintain financial buffers to protect against losses. (Associated Press)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)