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Credit Suisse shares rose on Thursday, bouncing off a latest low after the beleaguered lender announced it might use central bank support to bolster its funds.
Switzerland’s second-largest bank said it might borrow as much as 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank, providing investors with a moment of relief after the Zurich-based firm led the European banking sector into a sharp decline in last yr. session.
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Swiss-listed shares traded about 17% higher at 1:35 p.m. London time (9:35 a.m. ET) – a huge change from Wednesday’s fall of greater than 30% after their biggest backer said it would supply no further help with as a result of regulatory restrictions.
The sudden loss of confidence in Credit Suisse, which got here as concerns concerning the health of the banking system spread from the US to Europe, has led some to query Credit Suisse’s “true” share price.
“We want to step back and look, of course, on the viability of the business model [and] across your entire regulatory landscape,” said Beat Wittmann, CEO of Swiss firm Porta Advisors, in an interview with CNBC’s Squawk Box Europe.
“I believe the management of the bank now really needs to make use of this lifeline to validate their plan because obviously the capital markets haven’t bought into the plan as we now have seen very recently within the performance of stock prices and credit default swaps.”
Asked for his opinion on the sharp fall in Credit Suisse’s share price, which fell below 2 Swiss francs for the primary time on Wednesday, Wittmann said the “brutal” cycle of monetary tightening by major central banks in recent months meant corporations vulnerable from tremors now begins to “really suffer”.
“The weakest links break and that is what happens, and it was totally predictable – and it won’t be the last. So now it’s really time for politicians to revive confidence and liquidity to the system, whether within the US, Switzerland or elsewhere,” Wittmann said.
Asked for investor advice amid market turmoil, he said: “The upward momentum in inflation and rates of interest may be very clearly easing, so I believe there may be a very sound basis in capital markets.”
“But I’d strongly recommend sticking to top quality corporations – meaning strong management, strong balance sheets, strong value proposition. And now you’ll be able to pick them up at more attractive valuations,” added Wittmann.
“Material Weaknesses”
Even before the shock collapsed Two US banks last week, Credit Suisse has been plagued with problems lately, including allegations of money laundering and espionage.
The bank’s disclosure earlier this week of “significant weaknesses” in its reports added to investor concerns.
Credit Suisse executives said on Wednesday, nevertheless, that its latest move to secure a significant financing deal showed “decisive motion” to strengthen the business. She thanked the Swiss National Bank and the Swiss Financial Market Authority for his or her support.
Analysts welcomed the move and suggested fears of a latest banking crisis could also be overblown.
“The stronger liquidity position and collateral provided by the Swiss National Bank with the support of Finma is positive,” said Anke Reingen, an analyst at RBC Capital Markets, in a research note.
“Regaining trust is crucial for CS motion. The measures taken should provide some comfort that spillovers to the sector might be contained, however the situation stays uncertain, she added.
Meanwhile, UBS analysts said that market participants are “scuffling with three related but different issues: bank solvency, bank liquidity and bank profitability.”
“Briefly, we imagine banks’ solvency concerns are exaggerated, with most banks maintaining a strong liquidity position,” they added.
“A fantastic story of twists and turns”?
For Dan Scott, head of multi-asset management at Swiss asset manager Vontobel – who worked at Credit Suisse – it is not all bad news.
“I’d say Credit Suisse remains to be one of the world’s largest asset managers, with half a trillion in assets and it may well definitely be a great story if execution is nice,” he told Squawk Box Europe on Thursday.
Asked by CNBC’s Geoff Cutmore if that might mean investors would remain patient despite the turmoil out there and the size of the bank’s outflows, Scott replied: “Absolutely. But again, I believe the stress we’re seeing at once really must have been predictable. “.
“With rates of interest rising so fast, some business models grow to be difficult and I do not think the wealth management business model is being questioned. I believe a lot more and why we saw it at Silicon Valley Bank, will private markets be challenged,” added Scott.