As recently as October, Credit Suisse was buying back its bonds to calm the markets. Now it is drawing billions from the Swiss National Bank. It raises the question of its current liquidity situation.
Credit Suisse took preventive measures to strengthen its liquidity on Wednesday night. The bulk of those measures came in the form of 50 billion Swiss francs ($54.2 billion)of liquidity made available by the Swiss National Bank.
SNB Liquidity on Call
In addition, Credit Suisse will receive a credit facility of 39 billion Swiss francs, backed by top-tier collateral. According to sources close to the bank, this is intended to send a powerful message to financial markets worried about systemic bank risk. According to reports, the SNB facility was made available in the fall. Credit Suisse has not taken up that offer.
The measures lifted the price of Credit Suisse stock Thursday morning when trading opened. At one point the price was up over 30 percent, and trading at 2.02 francs currently, up about 20 percent.
Credit Suisse promptly set out to deploy the money. It plans to buy back about three billion francs of its outstanding market debt, according to further reports. In this way, the bank is communicating to the financial market that it is liquid at all times and can afford to settle outstanding debts outside of the scheduled maturities.
October Panic Contained
Credit Suisse management sent the same signal at the beginning of October. At the time, customers had withdrawn nearly 84 billion francs from the institution in October and November in a panicked reaction to social media rumors. To counteract this, it bought back three billion francs worth of its bonds.
The move worked. But was that a one-trick pony or will the move work a second time? This difference is this time, Credit Suisse is conducting a buyback with billions of other people's money. Namely the credit from the SNB which could lead to additional concerns about the bank's liquidity.
Concerned Savers and Clients
«Reuters» reported yesterday, quoting anonymous bank executives, that savings were flowing from Credit Suisse to their institutions, with worried calls from corporate clients to Credit Suisse and funds checking on their positions at the Swiss institution. All of this speaks to a tight liquidity situation. Despite all of that, it appears it was primarily the drop in its bond prices and record-high prices for credit insurance (CDS) that prompted the bank to act.
The SNB and the Swiss Financial Market Supervisory Authority declared Wednesday evening that Credit Suisse was liquid. The bank itself on Thursday again pointed to its liquidity coverage ratio, which it said had increased from 144 percent at the end of last year to 150 percent currently.
Faster Restructuring
The SNB facility will further improve this ratio. In addition, the bank is conservatively positioned regarding interest rate risks. Ninety percent of outstanding loans are covered by collateral and management doesn't want to change anything in terms of strategic restructuring. So if anything, the pace will be increased.
