Credit Suisse to Borrow Record Amount from Swiss Central Bank

Credit Suisse, a Swiss bank, announced on Thursday that it needs help with its finances. It will get up to $54 billion from the country’s central bank after its stock prices dropped and other big European banks also struggled. To get this money, Credit Suisse can borrow up to 50 billion francs ($53.7 billion).

Credit Suisse said it was getting more money, which would help its customers and make the bank simpler. This news made people worried, and Credit Suisse’s stocks dropped by more than a quarter of their value on Wednesday.

The price of the bank’s stock dropped to its lowest ever due to an announcement from the Saudi National Bank, their biggest shareholder. The Saudi bank didn’t want to give more money since this bank was having troubles before even the American banks struggled. They wanted to keep their ownership under 10%, which is why they had invested 1.5 billion Swiss francs previously.

The news created a lot of trouble, and caused the stock market to stop trading shares from Credit Suisse. The stocks from other banks in Europe also went down, and some fell by a big amount.

At a financial meeting in Riyadh on Wednesday, Axel Lehman who is the Chairman of Credit Suisse said that they have sorted out risks before and were prepared for this news.

When asked if he would consider getting help from the government, he answered:”That’s not something that I need to think about. We are following all the regulations set out and we have a strong balance sheet. Everyone is working hard, so getting help isn’t even an option.”

Switzerland’s bank recently said it would help Credit Suisse if needed, but didn’t explain how. The authorities also think that Credit Suisse has enough funds to pay what it needs to.

The day before, Credit Suisse said that mistakes were found in their internal system which caused people to worry about its ability to handle the situation. After this was revealed, the Credit Suisse stock dropped a lot – around 30%. It got back up some but still ended with a 24% loss by the end of the day on SIX stock exchange. The stock price was down 85% since February this year!

Before, the Swiss National Bank and the Swiss financial markets regulator made an announcement, the stock was going down. They used to sell for 80 francs ($86.71) each in 2007 but since people were worried about more banking problems, investors decided to sell their bank stocks quickly.

Four big banks in Europe saw their stock prices drop quickly, causing investors to become worried. Societe Generale SA from France dropped 12%, BNP Paribas from France fell more than 10%, Deutsche Bank from Germany was down 8%, and Barclays Bank in Britain fallen by nearly 8%. In response, the exchange temporarily stopped trading stocks of these two French banks. The STOXX Banks index, which measures 21 significant European lenders, slid a huge 8.4% after things seemed to settle back down on Tuesday.

Wednesday’s stock market performance in the U.S wasn’t very good. The Nasdaq composite rose slightly (0.1%) while the S&P 500 and Dow Jones Industrial Average both fell (0.7% and 0.9%, respectively). Banking stocks in Japan also weren’t doing well – Resona Holdings, Japan’s fifth largest bank, decreased by 5%. Other banks dropped more than 3%.

The markets were very jumpy the day before a meeting of the European Central Bank. The President said they would probably raise interest rates by 0.5%, to help stop prices from rising quickly. Now it’s not clear if they will do that, because of recent problems in the US. People are watching closely to see what happens.

Andrew Kenningham, an economist with Capital Economics, said that Credit Suisse could be a bigger risk to the global economy than other smaller banks in America that have failed. This is because it has multiple branches around the world and offers financial services to hedge funds. The problems with Credit Suisse were already known before, so this wasn’t really a big surprise for investors or experts in this area.

People are asking if an event involving Credit Suisse Bank is a sign of bad news worldwide or just something that doesn’t mean anything. Most people think Credit Suisse is weak compared to other banks and they don’t make much money.

At a Credit Suisse branch in Geneva, Fady Rachid and his wife were worried. He was thinking about moving some money over the UBS instead.

“Rachid, a 56-year-old doctor, isn’t sure Credit Suisse will solve its problems.” Investors are worried because banks have been facing difficulties due to low interest rates and what is called “very, very loose monetary policy,” according to Sascha Steffen, a finance teacher at Frankfurt School of Finance & Management.

Banks needed to make more money, so some of them took risks. European finance leaders said that their banks were not affected by the problems U.S. banks had in 2008. Europe made laws afterward that made sure the biggest banks were better watched, according to experts.

Credit Suisse, a parent bank, has branches located in various European countries, which must follow certain international regulations. These regulations require Credit Suisse to have money stored away to protect against any potential losses they may face. This makes Credit Suisse one of the 30 most important banks around the world that must stick to these guidelines.

Credit Suisse, a Swiss bank, is trying hard to make more money. This is because it’s been dealing with some difficult problems such as bad investments on hedge funds, constant changes in its leadership team, and even a spying scandal with UBS from Zurich.

The bank revealed in their new annual report that the amount of customer deposits dropped significantly by the end of last year. It went down 41% which comes out to be around 159 billion francs ($172.1 billion).

Someone named McHugh shared news from Frankfurt, Germany. Also, two other people called Joseph Krauss (in Ottawa) and Angela Charlton (in Paris) added their ideas too!