Credit Suisse takes up $81bn loan to shore-up liquidity

Credit Suisse has announced its intention to “pre-emptively” strengthen its liquidity by exercising an option to leverage a Covered Loan Facility and a short-term liquidity facility offered by the Swiss National Bank (SNB).

The “fully collateralised" facilities were valued at approximately $81 billion. 

Separately, Credit Suisse offered to repurchase 10 US dollar denominated senior debt securities via a tender offer, valued at up to USD$2.5 billion ($3.7 billion), while also launching a cash tender offer for four Euro denominated senior debt securities at an aggregate consideration of up to €500 million ($798 million). 

Both offers, which would expire on Wednesday, 22 March 2023, would help manage Credit Suisse’s “overall liability composition”, while also “optimising interest expense” and allowing the bank to “take advantage of current trading levels to repurchase debt at attractive prices”.  

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Credit Suisse CEO Ulrich Koerner said the troubled bank was taking “decisive action” to fund strategic transformation.

“My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs,” he said. 

Credit Suisse’s announcement came amid ongoing concerns over the strength of the bank’s balance sheet, which was undermined by “significantly higher withdrawals” of cash deposits and non-renewal of maturing time deposits over the fourth quarter of 2022.

These outflows “substantially exceeded” the rates experienced in the previous quarter, up from $21 billion to $180 billion. 

Investor sentiment had since worsened off the back of three banking collapses in the United States, attributed to poor capital management exposed by aggressive monetary policy tightening. 

But the Swiss regulators sought to allay fears, stressing “strict capital and liquidity requirements” imposed on local banks have built healthy buffers to absorb shocks. 

“Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks,” the regulators noted.

As at 31 December, 2023, Credit Suisse had a Common Equity Tier 1 (CET1) ratio of 14.1% and an average liquidity coverage ratio (LCR) of 144% (since rising to 150% as at 14 March).

The Swiss regulators also distanced the local banking system from the fallout associated with the collapse of US banks — Silvergate Capital, Signature Bank, and most notably, Silicon Valley Bank (SVB). 

“FINMA and the SNB are pointing out in this joint statement that there are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market,” the Swiss regulators noted. 

Credit Suisse added that unlike these US banks, it was “conservatively positioned against interest rate risks.” 

“The volume of duration fixed income securities is not material compared to the overall HQLA (high quality liquid assets portfolio and, in addition, is fully hedged for moves in interest rates,” the bank noted in its latest public statement. 

Credit Suisse also touted the quality of its loan book, which it said is “highly collateralised” at almost 90%, with more than 60% in Switzerland.

These latest developments came just days after the release of Credit Suisse’s 2022 annual report, detailing the findings of an external review of its internal control mechanisms, aimed at assessing whether the bank has provided “reasonable assurance” regarding the reliability of its financial reporting.

The review found that as at 31 December 2022, the bank’s internal processes were “not effective”, given it did not “design and maintain an effective risk assessment process” used to identify and analyse the risk of” material misstatements”. 

Credit Suisse’s board of directors acknowledged “material weakness”, which may have resulted in misstatements of account balances or disclosures. 

Further, the report noted observations from global consultancy firm PricewaterhouseCoopers (PwC), which found Credit Suisse “did not design and maintain an effective risk assessment process”.

However, after acknowledging these gaps, Credit Suisse stressed its financial statements as at 31 December 2022 comply with Swiss law.  

The bank was reportedly developing a remediation plan to address shortcomings.  

But assurances of the bank’s stability had not been enough to prevent a sell-off in the share market, with its share price plunging 35.3% over the past five days, closing trading on Wednesday (15 March) at CHF 1.70 (AUD$2.76). 

Credit Suisse was not the only major bank to take a significant hit on the stock exchange, with an Oxford Economics analysis revealing US bank share prices fell 17.6% over the five days following the collapse of California-based Silicon Valley Bank — the country’s 16th largest bank.   

Across advanced economies, bank equity prices fell 10%, compared to just 1.5% in emerging markets.