Populists refuse to back state guarantee for $53 billion bailout

Credit Suisse shares fall after the rejection of a forced merger with another Swiss bank. It comes as Switzerland’s largest political party signals it is against a state guarantee of the Credit Suisse bailout after receiving a cash injection from the Swiss National Bank (SNB) on Thursday with a loan of more than $50 billion.

Considering that Credit Suisse, the second largest bank in the country and one of the largest in the world, was vital for the stability of the Swiss financial system and economy, the SNB intervened on Thursday to grant the bank a loan worth 50 billion francs ($53.7/£44.3 billion). The move, they said, was aimed at stabilizing the lender amid fears it was the second major bank to fail after the collapse of Silicon Valley Bank in the United States last week, the report said. German-language Swiss newspaper. Neue Zürcher Zeitung reported.

According to the Swiss National Bank’s latest financial stability report, Credit Suisse currently accounts for 13% of all domestic loans and 14% of domestic deposits. It is also one of two banks in Switzerland, alongside UBS Group AG, to have international holdings.

However, despite the central bank’s determination that Credit Suisse is vital to the national economy, Thomas Matter, a leading member of the right-wing populist party, said: “The government should not give Credit Suisse a guarantee of ‘State.”

“The Swiss National Bank was responsible for providing liquidity to Credit Suisse, and the SNB took action,” Matter added.

Still, the country’s second-largest party, the Social Democrats, signaled they would not object to the state guaranteeing the loan, but a spokesman warned the central bank ‘should be well compensated’ .

Commenting on the Swiss bank’s situation, JP Morgan analysts said Credit Suisse’s problems were more related to “continuing market confidence issues with its IB (investment banking) strategy and continued erosion of the franchise,” adding that they thought it was possible the bank could be taken over by another entity.

It has been reported that Credit Suisse and its biggest Swiss competitor UBS oppose a forced merger, as UBS is not interested in taking on the risk of its rival. The news has seen Credit Suisse shares fall as much as 12% in trading so far today.

Meanwhile, Capital Economics chief economist Neil Shearing said “Credit Suisse’s problems are very different from those that brought down SVB a few days ago”, but that “they are a reminder that as interest rates rise, vulnerabilities lurk.” in the financial system.

Even so, shares of Credit Suisse jumped more than 30% on Thursday in European markets in early trading after the announcement of the central bank’s liquidity injection.

Credit Suisse’s stance was called into question last week after the U.S. Securities and Exchange Commission (SEC) contacted the bank to let it know it was threatening to provide inaccuracies about its cash accounting for 2019. and 2020, forcing the bank to delay the release of its annual report to this week.

The bank admitted on Tuesday that there was a “weakness” in its books, which it said resulted from a “failure to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements”.

The admission has led analysts such as Robert Kiyosaki to warn that Credit Suisse could be the next big bank to fail, after the collapse of ESG-obsessed Silicon Valley Bank last week, marking the biggest bank failure since the global financial crisis of 2008.

Follow Kurt Zindulka on Twitter here @KurtZindulka


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