Midnight manoeuvres by central bankers don’t always work, but the Swiss National Bank clearly did the right thing by advancing a 50bn Swiss francs (£44bn) liquidity facility to beleaguered Credit Suisse. The action has bought some time for everybody to breathe and take stock. Credit Suisse itself did its bit by saying it would repurchase about $3bn (£2.5bn) of its own debt, presumably at an enormous discount to face value, to improve its financial ratios.
As it happens, the bank’s liquidity ratios were reportedly fine anyway, but extra capacity still matters at a moment when the specific worry is depositors yanking their money. In any case, once Credit Suisse had asked for a new facility, the request had to be granted. Refusal would have been devastating. A globally systemic bank cannot be left to flap in the wind. Credit Suisse’s shares rebounded on Thursday (albeit a net fall of 15% over four days this week should be nobody’s idea of a triumph) and the wider European banking sector enjoyed a better day.
Job done? Of course not. The next question is whether the Swiss authorities will be happy to trust that Credit Suisse’s current self-help strategy is bold enough to overcome a crisis that has been 10 years in the making. It would be a risky bet.
One reason for the market’s distrust is that the chief executive Ulrich Körner’s turnaround programme will take three years to complete. Everything is on track on the job-slashing front after six months, but the centrepiece of the rejig is meant to be a semi-separation of the investment bank, a task that remains firmly in “work in progress” territory.
Even the exact shape of the bits to go, and the bits to be retained, is still to be settled. And, since late-2024 is probably the earliest a spin-off could happen, there is a long period to navigate before “new Credit Suisse” emerges. Maybe the period is simply too long. In the new banking climate, as we’ve seen in the past fortnight, life can move quickly and in unexpected directions.
Alternative strategies could involve separating Swiss Bank, the domestic bank and best-performing division in recent years, or selling the asset management operation. It seems neither course is being contemplated, however, perhaps because removing the strongest parts from the weakest could make matters worse in the interim. A grand combination with UBS – a few analysts’ idea of an escape route – would take ages to execute but may fit the bill as a definitive outcome the market can believe in. Or get the investment bank off the books sooner by closing it.
A long overhaul at Deutsche Bank, one could counter, delivered on most of its promises eventually, despite many outsiders’ predictions of calamity circa 2016. Yet today’s financial conditions feel rougher. Credit Suisse’s leisurely timetable can’t take many more setbacks. The picture of deposit outflows from the wealth management division, which caters for the financial needs of family offices and megabucks individuals, is said to be improving. What if it gets worse again after the latest turn in the spotlight?
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The wider good news, of a sort, is that the past week has brought reassuring reminders that big and hairy global banks like Credit Suisse – as opposed to under-regulated second-tier lenders like Silicon Valley Bank in the US – have capital structures that are designed to cope with a true emergency. The stack of capital can be “bailed in” to absorb losses in ways that weren’t possible in the 2007-09 banking crisis. But, for Credit Suisse itself, the strategic questions are piling up. The pressure has only been relieved a little.