Introduction: Credit Suisse turns to Swiss National Bank; ECB rate decision ahead
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With a crisis raging, Credit Suisse has turned to its central bank for support in an attempt to calm fears over its finances.
In a statement overnight, Credit Suisse announced it would up to 50 billion Swiss francs (£44bn) from the Swiss National Bank in what it called “decisive action” to strengthen its liquidity.
Credit Suisse found itself at the eye of the storm in the banking sector yesterday – shares tumbled 30% at one point – after its largest shareholder said it could not add to its stake in the bank.
That prompted talk with the Swiss National Bank and financial regulator FINMA, who declared last night that the SNB would provide liquidity “if necessary.”
Credit Suisse’s CEO Ulrich Koerner said the additional liquidity would support Credit Suisse’s core businesses and clients, saying:
“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 and more focused bank built around client needs.”
Credit Suisse also announced overnight it will buy back 3bn Swiss francs worth of its debt, as part of its move to calm investors’ nerves.
Other central banks are also watching the situation. The Guardian understands that staff at the Bank of England are continuing to monitor developments in the financial sector closely.
Yesterday, the head of asset manager BlackRock warned that the collapse of Silicon Valley Bank last weel could just be the start of “a “slow rolling crisis” in the US financial system with “more seizures and shutdowns coming”.
Fears over the banking sector roiled markets yesterday. Around £75bn was wiped off the UK’s FTSE 100 index, as the blue-chip index slumped by 3.8% – its biggest percentage fall since the first day of the Ukraine war.
Stocks are expected to open higher today, clawing back some of Wednesday’s losses.
Also coming up today
The Credit Suisse crisis looms over the European Central Bank, as it meets to set eurozone interest rates today.
Back in February the ECB pre-committed to a large increase in borrowing costs today, of half a percent (50 basis points) – but that may be less palatable given the turmoil in the markets.
Previous rises in central bank interest rates, and the impact on bond prices, is clearly already causing serious ructions in the banking sector, with three US banks having failed in the last week. So with the markets in such turmoil, the ECB’s governing council may be tempted to hold off on a rate increase, or plump for a smaller quarter-point rise.
After all, the woes of the global banking sector mean that inflation is yesterday’s problem, says IG analyst Tony Sycamore.
Sycamore adds:
And to a certain extent, the past week’s events have done the dirty work of central banks and will dampen inflation. Higher funding costs, tougher regulation, lower margins, and capital raises will restrict the flow of credit to the economy, and both growth and inflation will slow.
The agenda
-
12.300am GMT: US weekly jobless claims
-
1.15pm GMT: European Central Bank interest rate decision
-
1.45pm GMT: European Central Bank press conference
Key events
Banking stocks are the top risers on the European stock markets in early trading:
European movers:
Credit Suisse +32%
Julius Baer +9.8%
UBS +6.0%
Deutsche Bank +5.6%
UniCredit +5.5%
SocGen +5%
Air France +4.4%
Commerzbank +4.4%
HSBC +3.8%
ABN AMRO +3.5%
BNP Paribas +3.4%
Credit Agricole +3.2%
Barclays +3.1%
Lloyds +2.9%
Deliveroo -1.5%— Newsquawk (@Newsquawk) March 16, 2023
Shares in Credit Suisse surge 32% as markets welcome lifeline
Credit Suisse’s shares have jumped in value, reversing Wednesday’s slump, as investors welcome its plan to seek a lifeline from the Swiss central bank.
Credit Suisse’s shares jumped 32% at the start of trading in Zurich, after announcing it will borrow up to 50bn Swiss francs (£44bn) to boost its liquidity.
Victoria Scholar, Head of Investment at interactive investor, says the new liquidity lifeline agreed with Swiss authorities overnight “should prevent another Lehman moment”.
Scholar explains:
It has been undergoing a major restructuring, slashing thousands of jobs, shrinking its investment bank and focusing more on wealth management but this has done little to assuage the bears. The events of this week catalysed another major sell-off in the stock, raising concerns about the existential future of the bank, causing a painful ripple effect across broader markets.
Thankfully, there appears to be a lifeline for the beleaguered lender, which should prevent another Lehman moment, much to the relief of markets and Credit Suisse’s investors. The bank which has been around since 1856 has been instrumental in supporting growth of the Swiss economy with the SNB clearly judging that the bank’s systemic important overrides any moral hazard argument.
The collapse of SVB bank coupled with the turmoil at Credit Suisse have created “a perfect storm” for the financial sector which has been in disarray over the past week, Scholar adds:
The Stoxx 600 banks index in Europe has shed more than 14.5% over the past five trading days until Wednesday’s close while Credit Suisse’s losses spiralled. However the sector look poised for a major rebound this morning.”
European bank shares are rallying, with an index of Europe’s bank stocks jumping 3.3% at the start of trading.
Credit Suisse’s decision to borrow up to 50bn Swiss francs from Switzerland’s central bank is “staunching worries about a bigger run on Credit Suisse”, and the impact on other banks around the world, says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Streeter adds:
For now, the move has restored a little stability to global markets, with the S&P 500 regaining ground, once it appeared the Swiss National Bank was standing by to help.
Nerves are still frayed though and that has been evident during trade in Asia.
Asia-Pacific markets trimmed their losses today, after Credit Suisse announced its plan to strengthen its cash position.
Japan’s Nikkei has closed down 0.8%, having tumbled 2% in early trading before CS’s announcement hit the wires.
Jeremy Hunt welcomes Credit Suisse support, and is following situation closely
Chancellor Jeremy Hunt says he is encouraged by news that Switzerland’s central bank had offered liquidity to Credit Suisse, with up to 50bn Swiss francs of support lined up.
Asked how concerned he was about the situation, Hunt told Sky News television:
Chancellors never comment on what’s happening in the markets.
Obviously, I’m following the situation. The governor of the Bank of England is following it very closely.
“I think the news we’ve heard from the Swiss authorities this morning is encouraging, but I won’t say any more than that.”
Credit Suisse shares are expected to rally when trading begins, in around 30 minutes.
They are indicated 21% higher in pre-market trading on the Swiss stock market on Thursday, after the country’s central bank offered to fund the bank with liquidity.
The bank’s stock closed at 1.697 Swiss francs on Wednesday, down 24%, after a tumultuous day.
CREDIT SUISSE SHARES INDICATED 21% HIGHER IN PRE MARKET ACTIVITY ON SWISS EXCHANGE AFTER CENTRAL BANK OFFERS LIQUIDITY.
— First Squawk (@FirstSquawk) March 16, 2023
Introduction: Credit Suisse turns to Swiss National Bank; ECB rate decision ahead
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
With a crisis raging, Credit Suisse has turned to its central bank for support in an attempt to calm fears over its finances.
In a statement overnight, Credit Suisse announced it would up to 50 billion Swiss francs (£44bn) from the Swiss National Bank in what it called “decisive action” to strengthen its liquidity.
Credit Suisse found itself at the eye of the storm in the banking sector yesterday – shares tumbled 30% at one point – after its largest shareholder said it could not add to its stake in the bank.
That prompted talk with the Swiss National Bank and financial regulator FINMA, who declared last night that the SNB would provide liquidity “if necessary.”
Credit Suisse’s CEO Ulrich Koerner said the additional liquidity would support Credit Suisse’s core businesses and clients, saying:
“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 and more focused bank built around client needs.”
Credit Suisse also announced overnight it will buy back 3bn Swiss francs worth of its debt, as part of its move to calm investors’ nerves.
Other central banks are also watching the situation. The Guardian understands that staff at the Bank of England are continuing to monitor developments in the financial sector closely.
Yesterday, the head of asset manager BlackRock warned that the collapse of Silicon Valley Bank last weel could just be the start of “a “slow rolling crisis” in the US financial system with “more seizures and shutdowns coming”.
Fears over the banking sector roiled markets yesterday. Around £75bn was wiped off the UK’s FTSE 100 index, as the blue-chip index slumped by 3.8% – its biggest percentage fall since the first day of the Ukraine war.
Stocks are expected to open higher today, clawing back some of Wednesday’s losses.
Also coming up today
The Credit Suisse crisis looms over the European Central Bank, as it meets to set eurozone interest rates today.
Back in February the ECB pre-committed to a large increase in borrowing costs today, of half a percent (50 basis points) – but that may be less palatable given the turmoil in the markets.
Previous rises in central bank interest rates, and the impact on bond prices, is clearly already causing serious ructions in the banking sector, with three US banks having failed in the last week. So with the markets in such turmoil, the ECB’s governing council may be tempted to hold off on a rate increase, or plump for a smaller quarter-point rise.
After all, the woes of the global banking sector mean that inflation is yesterday’s problem, says IG analyst Tony Sycamore.
Sycamore adds:
And to a certain extent, the past week’s events have done the dirty work of central banks and will dampen inflation. Higher funding costs, tougher regulation, lower margins, and capital raises will restrict the flow of credit to the economy, and both growth and inflation will slow.
The agenda
-
12.300am GMT: US weekly jobless claims
-
1.15pm GMT: European Central Bank interest rate decision
-
1.45pm GMT: European Central Bank press conference
