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Bailout Arrives: Credit Suisse To Borrow $54BN From SNB To "Pre-emptively Strengthen Liquidity"

- ZERO HEDGE - TYLER DURDEN - MAR 16, 2023 -


The bank also announced offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to about CHF3 billion, which will help the bank pick up a few pennies in bond discount, even as it faces tens of billions in deposit flight.


Summary:

  • Saudis fold - refuse to throw any more money at Credit Suisse

  • Credit Suisse stock hits record low

  • Credit Suisse 1Y CDS explodes as counterparty risk hedging soars

  • Credit Suisse execs urged a "show of confidence" from the Swiss National Bank

  • ECB quantifying exposures to Credit Suisse

  • US Treasury monitoring situation, talking with other regulators

  • Fed working with UST to quantify exposures

  • One major govt is pressuring Swiss to intervene

  • Systemic risk threat spreads globally

  • Swiss authorities seeking to stabilize bank

  • Swiss National Bank and Finma issue statement of support

  • Credit Suisse said it’s planning to borrow from the Swiss National Bank up to CHF50 billion under a covered loan facility.

Update (21:00ET): And so, the "bailout" arrives just a few hours before the Europe open, Credit Suisse said it’s planning to borrow from the Swiss National Bank up to CHF50 billion ($54 billion) under a covered loan facility which is "fully collateralized by high quality assets". It wasn't immediately clear what high quality assets CS has left to pledge but in a time of BTFP, we are confident they found something.



The bank also announced offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to about CHF3 billion, which will help the bank pick up a few pennies in bond discount, even as it faces tens of billions in deposit flight.

Here is the full press release:

Credit Suisse Group takes decisive action to pre-emptively strengthen liquidity and announces public tender offers for debt securities
Credit Suisse is taking decisive action to pre-emptively strengthen its liquidity by intending to exercise its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility as well as a short-term liquidity facility, which are fully collateralized by high quality assets. Credit Suisse also announces offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to approximately CHF 3 billion. Credit Suisse announces its intention to access the SNB’s Covered Loan Facility as well as a short-term liquidity facility of up to approximately CHF 50 billion in aggregate. This additional liquidity would support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs. Credit Suisse also announces today that it is making a cash tender offer in relation to ten US dollar denominated senior debt securities for an aggregate consideration of up to USD 2.5 billion. Concurrently, Credit Suisse is also announcing a separate cash tender offer in relation to four Euro denominated senior debt securities for an aggregate consideration of up to EUR 500 million. Both offers are subject to various conditions as set out in the respective tender offer memoranda. The offers will expire on March 22, 2023, subject to the terms and conditions set out in the offer documents. 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. CEO Ulrich Koerner said: “These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders. We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.” As a global systemically important bank, Credit Suisse, like its global peers, is subject to high standards for capital, funding, liquidity and leverage requirements. As of the end of 2022, Credit Suisse had a CET1 ratio of 14.1% and an average liquidity coverage ratio1 (LCR) of 144%, which has since improved to approximately 150% (as of March 14, 2023). The use of the Covered Loan Facility of CHF 39 billion will further strengthen the LCR with immediate effect. Credit Suisse is conservatively positioned against interest rate risks. The volume of duration fixed income securities is not material compared to the overall HQLA (high quality liquid assets) portfolio and, in addition, is fully hedged for moves in interest rates. Moreover, the loan book is highly collateralized at almost 90%, with more than 60% in Switzerland and an average provision for credit loss ratio of 8 bps across Wealth Management and the Swiss Bank.

While the one paragraph that matters is the first one up top, what we find interesting is its attempt to distance itself from SIVB and other regional US banks that have been crippled due to their duration exposure and asset/liability mismtach, to wit: "The volume of duration fixed income securities is not material compared to the overall HQLA (high quality liquid assets) portfolio and, in addition, is fully hedged for moves in interest rates." In other words,what brought SIVB down is not what will bring us down - i.e., a good old-fashioned bank run. What is funny, however, is that by being "hedged", CS admit it will get not benefit from yields now tumbling.


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So to summarize: Credit Suisse effectively just took out a priming DIP loan, pledging its last remaining assets with the SNB, to shore up some $54BN in emergency liquidity, probably how much the bank has seen in deposit outflows. It will be very interesting on what terms those assets were pledged.

Another way of saying it, is that this is a last-ditch liquidity infusion, and all it does is prevent forced asset liquidations (a la SVB). Meanwhile it does nothing to halt the depositor flight because once trust is broken, it rarely returns.

The news sent Euro Stoxx 50 futures 2% higher, and pushed Emini S&P futures to session highs of 3946; 2Year yields moved up by about 20bps to 4.00% before fading the move.


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LEIA MAIS >

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