Credit Suisse $54 bln lifeline offers limited respite to global banks

March 16 (Reuters) – Credit Suisse (CSGN.S) sought to shore up its liquidity and restore investor confidence on Thursday by borrowing up to $54 billion from Switzerland’s central bank, though it proved to offer only limited respite to global banking stocks.

The Swiss lender is the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis and its troubles have raised serious doubts over whether central banks will be able to sustain aggressive interest rate hikes.

However, the European Central Bank raised interest rates by 50 basis points on Thursday as flagged, stressing the resilience of the euro area banking sector while assuring it had plenty of tools to offer liquidity support if needed.

The ECB said it was “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area”.

Credit Suisse shares briefly bounced from a 25% fall on Wednesday after its statement, which came in the middle of the night in Zurich, but then faded and last traded 17.7% higher.

Major U.S. bank shares including JP Morgan (JPM.N), Morgan Stanley (MS.N) and Bank of America (BAC.N) slipped between 1% and 1.5% in early trading on Thursday, while the benchmark S&P 500 Banks Index (.SPXBK) was 2% lower.

Mid-sized and regional banks such as First Republic (FRC.N), PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N), KeyCorp (KEY.N), Comerica Inc (CMA.N) and Fifth Third Bancorp (FITB.O) tumbled between 3.5% and 30%.

Europe’s banking index (.SX7P) was up 1.3% by 1454 GMT, after days of heavy losses due to investor fears over potential bank stresses across the world.

The unease spread beyond the financial sector, with German corporate treasurers urged by their industry association not to “underestimate the current situation.”

Since March 8, before last week’s collapse of Silicon Valley Bank (SVB), European banks have lost around $165 billion in market value, Refinitiv data shows.

Policymakers have stressed that the situation now is different to the global financial crisis as banks are better capitalised and funds more easily available.

Allianz (ALVG.DE) one of Europe’s biggest financial firms, said that authorities were “well equipped” to deal with any liquidity crisis, “unlike what happened during” the global financial crisis of 2007 and 2008.

Credit Suisse said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank, which confirmed it would provide liquidity to Credit Suisse against sufficient collateral.

The move followed assurances from Swiss authorities that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks”.

Chief Executive Ulrich Koerner told Credit Suisse staff in a memo they should focus on facts as he pledged to rapidly move forward with a plan to streamline operations.

Switzerland’s second-largest bank would continue to focus on the transformation from a position of strength, Koerner said.

The bank’s stock market value has fallen by 90% since its peak in February 2007 of around $91 billion, to around $8.66 billion following a prolonged slide in its shares.

Analysts said that the measures will buy Credit Suisse time to carry out its planned restructuring and possibly take further steps to pare back the Swiss lender.

“We would not exclude the possibility of further restructuring statements from management designed to further simplify the bank,” Thomas Hallett at KBW said in a note.

Swiss media reported that Switzerland’s cabinet would hold an extraordinary meeting to discuss the situation. The government declined to comment.

Credit Suisse bankers contacted clients in Asia to reassure them after the latest inflow of funds.

“We’ve been telling them to read the statements and look at the fact that we are buying 3 billion francs worth of bonds because they are so cheap,” said a Hong Kong-based senior banker, who declined to be named.

EPICENTRE

The 167-year-old bank’s problems have shifted the focus for investors and regulators from the U.S. to Europe, where Credit Suisse led a bank share sell-off after its largest investor said it could not provide more funds due to regulatory constraints.

That added to broader fears sparked by last week’s collapse of Silicon Valley Bank (SVB) (SIVB.O) and Signature Bank, two U.S. mid-size firms.

Investors are focused too on any action by central banks and other regulators elsewhere to restore confidence.

Policymakers in Australia and South Korea sought to reassure markets that banks in their jurisdictions were well-capitalised.

SVB’s demise last week, followed by that of Signature Bank two days later, sent bank stocks on a roller-coaster ride as investors feared another collapse like Lehman Brothers, the Wall Street giant whose failure sparked the global financial crisis.

The exit for the doors raised fears of a broader threat to the financial system, and two supervisory sources told Reuters that the ECB had contacted banks on its watch to quiz them about their Credit Suisse exposures.

The U.S. Treasury also said it was monitoring the situation around Credit Suisse and was in touch with global counterparts.

Rapidly rising interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders already worried about a recession.

Traders are now betting that the Federal Reserve, which last week was expected to accelerate its interest rate hikes in the face of persistent inflation, may hit pause or reverse course.

Reporting by Tom Westbrook in Singapore, Scott Murdoch in Sydney, John Revill in Zurich, Amanda Cooper in London, Saeed Azhar in Dubai and Tom Sims in Frankfurt, additional reporting by Akriti Sharma in Bengaluru, Rae Wee in Singapore, Chiara Elisei and Dhara Ranasinghe in London, Vera Eckert and Ludwig Burger in Frankfurt, Yasmin Mehnaz in Bengaluru; Writing by Deepa Babington, Sam Holmes and Alexander Smith; Editing by Matthew Lewis, Shri Navaratnam and Tomasz Janowski

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