On Wednesday, Credit Suisse shocked investors as its stock price collapsed. Today, losses were reversed on the news that Swiss authorities are coming to the aid of the beleaguered bank.
The stock price of Credit Suisse kicked off Thursday morning trading on the Swiss stock exchange with significant price gains. At around 10:30 am, a share was trading at 2.03 Swiss francs, up around 20 percent from the previous day's close after gaining over 30 percent in pre-market trading. Even so, the price is still around 30 percent below the 2022 year-end closing price.
Relief for Bank Stocks
Investors reacted to news the Swiss National Bank and the Swiss Financial Market Supervisory Authority (Finma) rushed to the aid of the troubled bank on Wednesday night, pledging an emergency cash injection. Early this morning Credit Suisse announced it would borrow up to 50 billion Swiss francs from the SNB.
Overall, bank shares opened firmer on the Swiss stock exchange. UBS Group shares are currently trading around 4.4 percent higher, while Julius Baer Group was up over five percent. Financial stocks are also trending firmer on the European stock markets. Deutsche Bank is trading around one percent firmer and Commerzbank is up 3.4 percent. HSBC Holdings, BNP Paribas, Banco Santander, and Unicredit gained between 1.5 and 2.5 percent.
A Strong Signal
Analysts welcomed the move by Finma and the SNB. Christian Schmidiger, an analyst at Zuercher Kantonalbank, commented the decision should ease fears of a negative impact on the banking system, and Credit Suisse's liquidity coverage ratio (LCR) is likely to have increased with the liquidity injection. What impact the SNB's announcement will have on the dynamics of client money outflows at the bank remains to be seen, he wrote.
Zurich-based private bank Vontobel also sees the move by the Swiss authorities as sending a strong and important signal. The measures will hopefully calm the markets and break the negative spiral, is the view of analyst Andreas Venditti. However, it will take some time before the situation eases again, he added.
Customer Reactions
The St. Galler Kantonalbank sounded a similar note, saying «the crucial thing now is that confidence in the bank returns and that customers do not continue to withdraw their funds,» says Caroline Hilb Paraskevopoulos, head of investment strategy and analysis. She says Credit Suisse is solidly financed, although many market participants no longer seem to share that view.
According to the SGKB analyst, the current predicament at both Silicon Valley Bank and Credit Suisse has a lot to do with legacy issues and management mistakes. Overall, she considers the situation in the financial sector to be critical, but not a new financial crisis, particularly since the two institutions are very differently positioned.
Limited Impact
Stephen Dover, head of the Franklin Templeton Institute, points out that banking crises occur regularly. While recent events have left an echo in the financial markets, he believes that in Europe and Asia, the risks to the banking sector are very limited.
