Credit Suisse shares leap 35% as markets cheer lifeline

ZURICH/LONDON  – Credit Suisse shares jumped  by over 35 percent in premarket trading on Thursday, while the value of its bonds soared after the company secured a $54-billion lifeline from the Swiss National Bank to shore up liquidity and investor confidence.

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

Credit Suisse shares were indicated at 2.3 Swiss francs ($2.48), up 35 percent from Wednesday’s close. The stock fell by as much as 30 percent the previous day after the bank’s backer said it could not offer any more financial assistance for regulatory reasons.

The Swiss bank’s announcement overnight helped stem heavy selling in financial markets in Asian trade on Thursday and European markets were heading for a bullish start to the day.

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

Swiss central bank throws financial lifeline to Credit Suisse after shares pummeled

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. We will update our financial/valuation models to reflect the impacts of recent events and a higher risk perception in the financial sector (higher cost of equity),” Venditti said.

Turbulent week

The cost of insuring against the risk of default on Credit Suisse bonds blew out to distressed levels on Wednesday, while banking shares globally, which had already been pummeled by the collapse of two regional U.S. lenders in the last week, tumbled.

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

“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, 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, 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 and Societe Generale, witnessed their largest one-day drops since the depths of the COVID crisis three years ago, falling by over 10 percent at one point on Wednesday. By Thursday morning, shares in the two lenders were indicated up between 6-7 percent.

($1 = 0.9276 Swiss francs)

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Credit Suisse to borrow up to $54B as it seeks to calm investor fears