Near the close of US trading on Wednesday, the SNB and the Swiss Financial Market Supervisory Authority issued a joint statement on what they euphemistically described as “market uncertainty.”
By “uncertainty” they meant a record plunge in shares of Credit Suisse, which dropped 24% on enormous volume after the Saudis indicated they aren’t open to taking a larger stake in the bank, which is attempting to execute a complex restructuring plan.
Ulrich Koerner’s turnaround effort was complicated in recent days by financial sector turmoil triggered by a trio of bank failures in the US. The SNB addressed those failures directly.
“Problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets,” the bank said. “The strict capital and liquidity requirements applicable to Swiss financial institutions ensure their stability.”
Earlier in the day, reports indicated Credit Suisse requested a public statement from the central bank and Finma. In addition, sources said bank executives were in talks with the Swiss government on options to stabilize what had become a very volatile situation.
Other banks raced to hedge counterparty risk Wednesday, inverting Credit Suisse’s CDS curve dramatically. Some version of the alarming visual above was a mainstay on finance-focused social media, which was the bane of the bank’s existence in October.
One option reportedly discussed between management and Swiss authorities was a liquidity backstop. The SNB confirmed it would be willing to provide Credit Suisse with such assistance “if necessary.”
Later, Credit Suisse said it intended to access two SNB facilities “of up to approximately CHF50 billion in aggregate,” in order to “support core businesses and clients.”
In addition, the bank announced a planned tender offer for some $3 billion in dollar- and euro-denominated debt. “The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of current trading levels to repurchase debt at attractive prices,” the bank said.
The SNB statement was adamant about Credit Suisse’s adherence to the strict capital requirements to which all SIFIs are subjected, and both the SNB and Finma delivered the customary assurances vis-à-vis vigilance and close monitoring of relevant market developments.
“Credit Suisse’s stock value and the value of its debt securities have been particularly affected by market reactions in recent days,” Swiss officials said. The government is “following developments very closely.”
Commenting on the decision to tap the SNB for liquidity and repurchase debt, Ulrich Koerner described the measures as “decisive.” He thanked the central bank and Finma for their assistance.