After precipitous plunge, Credit Suisse shares soar after central bank aid announced

GENEVA —  Credit Suisse’s shares soared 30% on Thursday after it announced that it would move to shore up its finances by borrowing up to nearly $54 billion from the Swiss central bank, boosting confidence as fears about banking system soundness moved from the U.S. to Europe.

It was a massive swing from a day earlier, when shares of Switzerland’s second-largest commercial bank plunged 30% on the SIX stock exchange after its biggest shareholder said it would not put more money into Credit Suisse.

That dragged down other European banks after the collapse of some U.S. banks stirred fears about the health of global banks. European bank shares recovered a bit Thursday, with the Euro Stoxx Banks index of 21 leading lenders up 1.6%, following a steep 8.4% drop Wednesday. Bank stalwarts such as Commerzbank, Santander, Unicredit and Raiffaisen all rose more than 2%.

Credit Suisse, which was beset by problems long before the failure of Silicon Valley Bank and other U.S. financial institutions, said Thursday that it would exercise an option to borrow up to 50 billion francs ($53.7 billion) from the Swiss National Bank.

“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.

The banking turmoil has cast a shadow over Thursday’s meeting of the European Central Bank. Before the chaos erupted, ECB head Christine Lagarde had said it was “very likely” that the bank would make a large, half-percentage-point rate increase to tackle stubbornly high inflation.

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After European bank shares plunged Wednesday, analysts said the meeting outcome was hard to predict, with some saying the central bank might dial back to a quarter-point increase. Higher rates fight inflation but in recent days have fueled concern that they may have caused hidden losses on bank balance sheets.

Speaking Wednesday at a financial conference in the Saudi capital of Riyadh, Credit Suisse Chairman Axel Lehmann defended the bank, saying, “We already took the medicine” to reduce risks.

When asked if he would rule out government assistance in the future, he said: “That’s not a topic. ... We are regulated. We have strong capital ratios, very strong balance sheet. We are all hands on deck, so that’s not a topic whatsoever.”

Fanning new fears about the health of financial institutions following the recent collapse of Silicon Valley Bank and Signature Bank in the U.S., Credit Suisse’s share price hit a record low Wednesday.

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It came after the Saudi National Bank told news outlets that it would not inject more money into the Swiss lender. The Saudi bank is seeking to avoid regulations that kick in with a stake above 10%, having invested some 1.5 billion Swiss francs to acquire a holding just under that threshold.

The turmoil prompted an automatic pause in trading of Credit Suisse shares on the Swiss market and sent shares of other European banks tumbling, some by double digits. Credit Suisse’s stock has suffered a long, sustained decline: Now it’s trading at 2.10 Swiss francs, while in 2007, it was at more than 80 francs ($86.71) each.

Switzerland’s central bank announced late Wednesday that it was prepared to act, saying it would support Credit Suisse if needed. Regulators said they believed the bank had enough money to meet its obligations.

Credit Suisse reported earlier this week that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the storm.

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Credit Suisse is “a much bigger concern for the global economy” than the midsize U.S. banks that collapsed, said Andrew Kenningham, chief Europe economist for Capital Economics.

It has multiple subsidiaries outside Switzerland and handles trading for hedge funds.

“Credit Suisse is not just a Swiss problem but a global one,” he said.

He noted, however, that the bank’s “problems were well-known so do not come as a complete shock to either investors or policymakers.”

European finance ministers said this week that their banking system has no direct exposure to the U.S. bank failures.

Europe strengthened its banking safeguards after the global financial crisis that followed the collapse of U.S. investment bank Lehman Bros. in 2008 by transferring supervision of the biggest banks to the central bank, analysts said.

The Credit Suisse parent bank is not part of EU supervision, but it has entities in several European countries that are. Credit Suisse is subject to international rules requiring it to maintain financial buffers against losses as one of 30 so-called globally systemically important banks, or G-SIBs.

The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shakeups of its top management and a spying scandal involving Zurich rival UBS.

In an annual report released Tuesday, Credit Suisse said customer deposits fell 41%, or by 159.6 billion francs ($172.1 billion), at the end of last year compared with a year earlier.