Crisis-hit Credit Suisse got a much needed lifeline on Thursday as the Swiss National Bank agreed to lend it as much as $54 billion to stem a liquidity crisis. In the process, the Swiss banking giant became the first major global bank to receive an emergency line of credit since the 2008 financial crisis.
Serious Liquidity Crisis
The Credit Suisse deal with the Swiss central bank came a day after concerns over serious liquidity crisis at the Swiss bank created havoc on financial markets, reigniting fears of a snowballing of crisis following the collapse of Silicon Valley Bank and Signature bank in the United States last week.
"My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs," Credit Suisse CEO Ulrich Koerner said.
The Swiss National Bank funds will be channeled to Credit Suisse under the covered loan facility and a short-term liquidity facility. The loan will be fully collateralized by high quality assets, the bank said. "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," Credit Suisse said, according to Reuters.
Earlier on Wednesday, Credit Suisse' shares plunged after it was reported that Saudi National Bank, which was Credit Suisse's largest investor, refused to offer further financial assistance to the embattled Swiss bank. "We cannot because we would go above 10%. It's a regulatory issue," Saudi National Bank Chairman Ammar Al Khudairy said.
The fresh bout of crisis at one of the largest European banks created concerns of a new banking crisis. "The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another 'idiosyncratic' case," Andrew Kenningham, analyst at Capital Economics, wrote.
Credit Suisse's crisis worsened after a string of scandals in 2022 eroded customer confidencem, triggering a spate of high value withdrawals. The bank saw customer withdrawals of more than 110 billion Swiss francs in the fourth quarter alone, according to CNBC.
Timeline of Credit Suisse Crisis
The first major shock for Credit Suisse was the bankruptcy of Greensill, a British supply chain company to which the Swiss banking major was heavily exposed. When Greensill filed for bankruptcy in 2021, Credit Suisse lost a whopping $10 billion of its investor money.
The second crisis to hit Credit Suisse later in the same year was the unraveling of Archegos Capital Management, which was promoted by Bill Hwang. While Hwang managed $10 billion, he convinced Credit Suisse and other banks to approve a $30 billion investment.
The crisis unfolded when Archegos engaged in the fire sale of about $20 billion of assets after it defaulted on a margin call by Credit Suisse and others. Shares of Nomura and Credit Suisse plunged, erasing a combined $9 billion in market value on the back of the market chaos following the collapse of Archegos Capital Management. Major investment banks like Deutsche Bank, UBS, Morgan Stanley, Goldman Sachs etc were also hit by the liquidation of Archegos.