Credit Suisse intends to borrow up to CHF50 billion ($54 billion) from the Swiss National Bank under a covered loan facility “completely collateralized by high-quality assets.” However, what high-quality assets Credit Suisse had left to commit wasn’t immediately apparent.
The bank also disclosed proposals by Credit Suisse International to repurchase certain senior debt instruments for up to about CHF3 billion in cash, which will assist the bank in picking up a few cents in bond discount while facing tens of billions in deposit flight.
Trust is gone
In another sense, this is a last-ditch liquidity injection whose sole purpose is to avoid forced asset liquidations (a la SVB). But, in the meanwhile, it does little to stop the flight of depositors since once faith has been shattered, it hardly ever recovers.
CEO Ulrich Koerner said: “These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders. We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler, more focused bank built around client needs.”
Like its worldwide counterparts, Credit Suisse is subject to stringent capital, financing, liquidity, and leverage requirements as a global systemically significant bank. As a result, credit Suisse had a CET1 ratio of 14.1% as of the end of 2022 and an average liquidity coverage ratio1 (LCR) of 144%, which has subsequently increased to about 150%. (as of March 14, 2023).
The use of the Covered Loan Facility for CHF 39 billion will immediately bolster the LCR. As a result, Credit Suisse is prudently positioned with respect to interest rate risks. Moreover, the duration of fixed-income instruments is negligible relative to the entire HQLA (high-quality liquid assets) portfolio and is adequately hedged against interest rate fluctuations.
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In addition, the loan book is about 90% collateralized, with over 60% in Switzerland and an average provision for a credit loss ratio of 8 basis points for Wealth Management and the Swiss Bank.
Credit Suisse scandals
Recently, the bank has been tied to many scandals, such as a significant data leak that revealed the hidden wealth of clients implicated in torture, drug trafficking, money laundering, corruption, and other severe crimes.
The breach revealed the identities of the beneficiaries of more than 100bn Swiss francs (£80bn) stored at one of Switzerland’s most renowned financial institutions. In addition, the leak contained account information for 30,000 Credit Suisse clients worldwide.
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More recently, Credit Suisse acknowledged discovering “serious weaknesses” in financial reporting processes.
Judging by the stock price reaction to the liquidity provision, investors are not thrilled as the stock price continues to decline. But, as previously mentioned, once trust is gone, it will not return.
Credit Suisse daily chart, source: author´s analysis, tradingview.com
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