Swiss government holds talks on options to stabilise Credit Suisse

Switzerland’s second-largest lender has been pummelled over the past several years by series of blow-ups, scandals, leadership changes and legal issues

Credit Suisse shares nosedived on Wednesday after its main shareholder said it would not provide more funding. AFP
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Swiss authorities and Credit Suisse Group AG are discussing ways to stabilise the bank, according to people familiar with the matter, after comments by its biggest shareholder on Wednesday helped trigger a plunge in the stock.

The firm’s leaders and government officials have talked about options that include a public statement of support and a potential liquidity backstop, said the people, who asked not to be identified describing private discussions.

Among the ideas floated was a separation of the Swiss unit and a long-shot orchestrated tie-up with larger Swiss rival UBS Group AG, said the people, cautioning that it is unclear which, if any, of these steps will actually be carried out.

While scenario-planning has been going on for some time, urgency has been added after the firm’s shares plummeted to a record low and the cost to insure the bank’s debt reached crisis levels.

The lender has asked the Swiss central bank and regulator Finma for public statements of support, people familiar with the matter said. Such a statement may come as soon as Wednesday, one of the people said.

Representatives for Credit Suisse, UBS and the Swiss National Bank declined to comment. The nation’s finance ministry did not respond to requests for comment.

Credit Suisse’s stock plunged as much as 31 per cent on Wednesday, while some of its bonds dropped to levels that signal financial distress, as the Saudi National Bank ruled out increasing its stake because of regulatory constraints.

The plunge helped drag all European lenders lower as investors were quick to move away from banking risk after the turmoil induced by the collapse of Silicon Valley Bank.

Chief executive Ulrich Koerner on Tuesday preached patience and said the bank’s financial position is sound. He pointed to the firm’s liquidity coverage ratio, which indicates the bank can handle more than a month’s worth of outflows in a period of stress.

Chairman Axel Lehmann had said at a conference on Wednesday that government assistance “isn’t a topic” and the firm’s efforts to return to profitability are not comparable to the severe liquidity issues hitting smaller lenders in the US.

UBS chief executive Ralph Hamers on Wednesday declined to answer any “hypothetical” questions about Credit Suisse and only said he is “focused on our own strategy”.

Switzerland’s second-largest lender, which traces its roots back to 1856, has been pummelled over the past several years by a series of blow-ups, scandals, leadership changes and legal issues.

The company’s $7.9 billion loss last year wiped out the previous decade’s worth of profits, and the bank’s second strategy pivot in as many years has so far failed to win over investors or halt client outflows.

Clients pulled more than $100 billion of assets in the last three months of last year as concerns mounted about its financial health, and the outflows have continued even after it tapped shareholders in a 4 billion Swiss franc capital raise.

Credit Suisse’s funding costs have become so high it either needs to raise more capital or face a break-up, Morningstar analyst Johann Scholtz said in a note on Wednesday.

The bank could need another rights issue or the alternative would be “a break-up” of the bank in which its various business lines such as the Swiss unit, asset manager and wealth management divisions could be “sold or listed separately”.

The Swiss unit, which lends to the nation’s corporations and manages the money of wealthy people, has been a relative bastion of stability.

It is the only one of Credit Suisse’s four divisions to be profitable each of the last three years and produced 1.5 billion francs of pretax income in 2022.

Updated: March 15, 2023, 10:53 PM