Executives at investment bank Credit Suisse accepted a lifeline from Swiss authorities on Wednesday as concerns of a worldwide financial crisis loom.
The Swiss investment bank, the eighth-largest in the world, had identified several “material weaknesses” with respect to risk assessment strategy in a recently published annual report. After the Saudi National Bank refused to increase its 10% stake in the company, the Swiss Financial Market Supervisory Authority and the Swiss National Bank vowed to “provide liquidity” to the “systemically important” Credit Suisse if needed.
Credit Suisse announced on Thursday that it had accepted ₣50 billion, equivalent to $53.9 billion, from the Swiss National Bank. The move will permit Credit Suisse to support core business units and clients as executives “create a simpler and more focused bank.”
“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” Credit Suisse CEO Ulrich Koerner said in a statement. “My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.”
The dismal annual report issued by Credit Suisse said that performance last year was “significantly affected by the challenging macro and geopolitical environment with market uncertainty and client risk aversion,” prompting an “adverse impact on client activity across all our divisions.” Customers of Credit Suisse withdrew some $119 billion in the fourth quarter of last year amid risk and compliance failures.
Shares of Credit Suisse, which had plummeted from $2.49 to $1.76 between Tuesday and Wednesday upon the publication of the annual report, rose to $2.14 on Thursday as a result of the announcement from Swiss authorities. The company’s shares have nevertheless fallen more than 83% over the past two years.
Credit Suisse is one of 30 worldwide banks considered by the Financial Stability Board as “systemically important,” meaning that the failure of Credit Suisse could induce a financial crisis. The companies listed as systemically important are colloquially called “too big to fail.” The Swiss National Bank has additionally designated UBS, Raiffeisen Group, Zürcher Kantonalbank, and PostFinance as systemically important banks.
The tumult at Credit Suisse occurs days after Silicon Valley Bank, one of the largest financial institutions in the United States, collapsed amid depositors rushing to withdraw their funds. Silicon Valley Bank announced a $1.75 billion share sale after the company suffered heavy losses from the liquidation of a $21 billion bond portfolio, raising concerns among venture capital firms and startups with ties to the company about the safety of their assets.
The Federal Deposit Insurance Corporation (FDIC) now directs holdings maintained by Silicon Valley Bank, which state regulators in California closed on Friday, in order to strengthen confidence in the financial system by guaranteeing all deposits. Similar actions were taken for Signature Bank in New York, which was closed on Sunday.
The vast majority of deposits at Silicon Valley Bank, which offered services to nearly half of the venture-backed technology and healthcare firms in the United States, exceeded the $250,000 threshold insured by the FDIC. Regulators scrambled to guarantee all deposits at Silicon Valley Bank such that the remainder of the financial system, in which roughly half of deposits surpass $250,000, would remain protected.