Credit Suisse said it would borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss central bank.
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Shares of Credit Suisse rose on Thursday, rebounding from record lows after the lender announced it would tap central bank support to shore up its finances.
Switzerland’s second-biggest bank said it would borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank, providing relief to investors after the Zurich-headquartered firm led Europe’s banking sector down earlier in the day. session.
The Swiss-listed share price was trading about 24% higher at 11 a.m. London (7 a.m. ET) — a big swing from Wednesday’s more than 30% tumble after its biggest backer said it would not provide more aid because of regulatory restrictions.
The sudden loss of confidence in Credit Suisse, which comes as fears about the health of the banking system spread from the US to Europe, has raised some questions about the “correct” price of Credit Suisse shares.
“We need to step back and look at the viability of the business model [and] in the overall regulatory landscape,” Beat Wittmann, chairman of Porta Switzerland Advisory, told CNBC’s “Squawk Box Europe” on Thursday.
“I think bank leaders should now use this lifeline to review the plan because clearly, the capital markets have not bought the plan as we have seen from the performance of equity prices and credit default swaps recently.”
Asked for his opinion on the fall in Credit Suisse’s share price – which fell below 2 Swiss francs for the first time on Wednesday – Wittmann said the “brutal” monetary tightening cycle led by major central banks in recent months meant the company was vulnerable to shocks. now begins “the real suffering.”
“The weakest link has been cracked and it just happened, and everything is predictable – and it won’t be the last. Now is really the time for policymakers to restore confidence and liquidity in the system, whatever it is in the US, whatever it is. Switzerland, or somewhere else,” Wittmann said.
Asked to advise investors amid the market turmoil, he said: “The upward momentum in inflation and interest rates has receded significantly, so I think there is a healthy base in the capital markets.”
“But I would strongly recommend sticking to high-quality companies – that means strong management, a strong balance sheet, a strong value proposition. And now you can choose at a more attractive price,” added Wittmann.
‘Weakness of material’
Even before the shock collapse of two US banks last week, Credit Suisse has been plagued by problems in recent years, including allegations of money laundering and allegations of spying.
The bank’s disclosure earlier this week of “material weaknesses” in its report added to investor concerns.
Credit Suisse management said on Wednesday, however, that the latest step to secure a sufficient funding deal represents “decisive action” to strengthen the business. He thanked the Swiss National Bank and the Swiss Financial Market Supervisory Authority for their support.
Analysts welcomed the move and suggested fears of a fresh banking crisis may be overstated.
“The stronger liquidity position and backstop provided by the Swiss National Bank with the support of Finma is positive,” Anke Reingen, analyst at RBC Capital Markets, said in a research note.
“Regaining trust is the key to CS shares. Measure taken should provide some comfort that the spillover to the sector can contain, but the situation remains uncertain,” he added.
Analysts at UBS, meanwhile, said market participants were “grappling with three interrelated but distinct problems: bank solvency, bank liquidity, and bank profitability.”
“In short, we think the fear of bank solvency is overdone, and most banks retain a strong liquidity position,” they added.
A ‘good turnaround story’?
For Dan Scott, head of multi-asset management at Swiss asset manager Vontobel – who used to work for Credit Suisse – it’s not all bad news.
“I would say that Credit Suisse in particular is still one of the largest asset managers in the world, with half a trillion assets, and of course this can be a good story if the execution story is good,” he told CNBC’s “Squawk Box Europe.” on Thursday .
Asked by CNBC’s Geoff Cutmore if this meant investors remained patient despite market turmoil and the scale of bank outflows, Scott replied, “Absolutely. .”
“When the rates rise so fast, certain business models ask for challenges and I don’t think it’s a wealth management business model that will be challenged. I think more and what we see in Silicon Valley Bank, it’s the private market that’s going to be challenged,” added Scott.