Credit Suisse shares leap in delicate truce with doubters

Analysts say the status quo after a $54 billion loan from the SNB is no longer an option, leaving a takeover of Credit Suisse as the most likely outcome.

Credit Suisse shares jumped around 18% on Thursday after the company secured a lifeline from the Swiss central bank to shore up investor confidence, reversing some of the losses that stripped off a quarter of its market value the day before.

The Swiss bank's announcement that it would make use of a $54-billion loan from the Swiss National Bank helped stem heavy selling in financial markets in Asia on Thursday and prompted a modest rally in European equities.

But the truce could prove fleeting, analysts warn.

JPMorgan analysts said the loan from the SNB would not be enough to soothe investor concerns and the "status quo was no longer an option", leaving a takeover of Credit Suisse as the most likely outcome.

The collapse of two regional US lenders in the last week has raised concern among investors and bank customers about the resilience of the financial system in the face of rising global interest rates.

Credit Suisse has seen a steady stream of withdrawals from wealthy clients, which Luis Arenzana, founder of Shelter Island Capital Management, told Reuters was not "necessarily a panicky reaction to recent events in the US alone".

"CS has not earned its cost of equity since 2013. The bank has lost a cumulative 2.5 francs per share since. This is not the result of just one or two big one offs as the bank reported a loss for five out of nine of those years," Arenzana said.

The initial reception from markets of news of the lifeline was positive. Credit Suisse shares surged by as much as 32% in the first few minutes of trade, following Wednesday's 24% slide that was triggered by the bank's biggest backer saying it could not offer any more financial assistance for regulatory reasons.

They were last up 18.4%.

In its statement early on Thursday, Credit Suisse said it would exercise an option to borrow from the central bank up to 50 billion Swiss francs ($54 billion).

That followed assurances from Swiss authorities on Wednesday that Credit Suisse met "the capital and liquidity requirements imposed on systemically important banks" and that it could access central bank liquidity if needed.

"Following yesterday's extreme share price volatility, Swiss authorities offered their support. This is a strong and important signal. We hope the measures will calm down markets and break the negative spiral," Bank Vontobel equity strategist Andreas Venditti said.

"However, it will take time to fully regain trust in the franchise," Venditti said.

TURBULENT WEEK

The cost of insuring against the risk of default on Credit Suisse bonds, which on Wednesday blew out to distressed levels, tumbled on Thursday.

Analysts at JPMorgan said in a note that a takeover was the most likely scenario for Credit Suisse, especially by rival UBS USBG.S.

"We see SNB liquidity support as indicated last night as not enough and believe CSG’s situation is about ongoing market confidence issues with its IB strategy and ongoing franchise erosion," JPMorgan said.

"In our view, the status quo is no longer an option as counterparty concerns are starting to emerge as reflected by credit/equity market weakness," they said.

The value of Credit Suisse's bonds rose sharply. The bank's additional tier 1 dollar-denominated bonds jumped by around 10 cents US225401AX66=TE, having plummeted below 50 cents on the dollar the day before.

"Credit Suisse is the first major bank, deemed too big to fail, to take up the offer of an emergency lifeline," Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.

"The $54 billion rescue wad is staunching worries about a bigger run on Credit Suisse and the repercussions for other institutions around the world exposed to its operations," she added.

Shares in other major European banks, particularly in France, such as BNP Paribas BNPP.PA and Societe Generale SOGN.PA, witnessed their largest one-day drops since the depths of the COVID crisis three years ago, falling by over 10% at one point on Wednesday. By Thursday morning, shares in the two lenders were up between 1.2-1.8%.