LONDON — Credit Suisse, a behemoth of European banking with assets stretching across the globe, is experiencing turbulence.
Earlier this week, Credit Suisse disclosed “material weaknesses” in its financial reporting this week and it was unclear whether the major bank would be able to get a financial rescue. That sent markets into panic. But a $53.7 billion liquidity lifeline from Switzerland’s central bank appeared to be calming European investors as markets rallied Thursday.
Credit Suisse’s troubles come in the wake of Silicon Valley Bank’s collapse less than a week ago. SVB’s failure, for many people, appeared to come out of nowhere. Two banking crises, just days apart, on two different continents, sparked concern over whether there could be a broader contagion that mirrored the global financial crisis of 2008.
Here’s what you need to know.
What has happened at Credit Suisse?
The 167-year-old Credit Suisse, with its origins as a bank for the ultrawealthy elite, on Tuesday announced in its annual report that it had uncovered “material weaknesses” relating to its financial reporting. This sent shares plummeting and sparked jitters across global financial markets as nervous investors rushed to limit their exposure. Credit Suisse said it was working to address its problems, which could require it to “expend significant resources.”
To calm investors, the Swiss National Bank issued a statement alongside the country’s main financial regulator, known as FINMA, stating that “if necessary,” it would provide Credit Suisse with liquidity, which it subsequently did to the tune of $53.7 billion. Credit Suisse also said it would buy back up to $3 billion worth of debt.
How is Saudi Arabia involved?
The Saudi National Bank is Credit Suisse’s largest investor, after acquiring an almost 10% stake in the bank last year.
Asked if the Saudis would be willing to buttress the bank with more funds, chairman Ammar Al Khudairy told Bloomberg TV on Wednesday: “The answer is absolutely not – for many reasons,” compounding Credit Suisse’s problems.
He said the Saudi stake was currently 9.8% and ownership over 10% would activate a host of higher regulatory and statutory rules. “We’re not inclined to get into a new regulatory regime,” he added.
Is this connected to the Silicon Valley Bank collapse?
Credit Suisse’s latest troubles are unconnected to those that brought down Silicon Valley Bank (SVB) and Signature Bank of New York, less than a week ago. However, the failure of SVB – marking the second-biggest bank failure in U.S. history – rattled markets and created a bleak financial outlook as investors remain fearful of a contagion after learning of Credit Suisse’s announcement this week.
Credit Suisse is also much larger and more integrated with the global financial system than SVB, making any meltdown more far reaching and signaling that the banking-sector issues are not confined to U.S. banks. But Credit Suisse has substantially more liquid assets than SVB and is labeled a “Global Systemically Important Bank (G-SIB)” – meaning it is subject to significantly higher standards for capital, funding, liquidity and leverage requirements.
Is this as bad as the 2008 financial crisis?
No.
Unlike Lehman Brothers, which collapsed suddenly in 2008 as people recognized the size of its off-book liabilities and businesses, Credit Suisse’s troubles do not yet appear as critical, although it has struggled to restructure.
The liquidity lifeline form the national bank on Thursday boosted shares more than 30%, signaling the crisis may be contained as investors feel reassured.
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