By John Revill, Amanda Cooper and Tom Sims
(Reuters) -Credit Suisse sought to shore up its liquidity and restore investor confidence on Thursday by borrowing up to $54 billion from Switzerland’s central bank, though the move proved to offer only limited respite to global banking stocks.
The Swiss lender is the first major global bank to be thrown an emergency lifeline since the 2008 financial crisis and its troubles have raised serious doubts over whether central banks will be able to sustain aggressive interest rate hikes.
However, the European Central Bank raised interest rates by 50 basis points on Thursday as flagged, stressing the resilience of the euro area banking sector while assuring it had plenty of tools to offer liquidity support if needed.
The ECB said it was “monitoring current market tensions closely and stands ready to respond as necessary to preserve price stability and financial stability in the euro area.”
Credit Suisse shares were 19% higher at 1558 GMT, recovering some of their 25% fall on Wednesday.
In the United States, the spotlight moved to First Republic Bank, with several banks including JPMorgan Chase & Co and Morgan Stanley in talks with the lender for a potential deal, the Wall Street Journal reported on Thursday, citing people familiar with the matter.
The deal could involve a capital infusion to bolster the troubled lender after the collapse of SVB last week triggered fears of a contagion, the report said, adding that a full takeover is also a possibility, though less certain.
The rescue is being orchestrated by the U.S. government, Bloomberg News reported on Thursday, citing people with knowledge of the matter.
Shares of major U.S. banks bounced from recent lows, with JP Morgan, Morgan Stanley and Bank of America all up more than 1% on Thursday afternoon, while the benchmark S&P 500 Banks Index recovered 0.9%.
Among mid-sized and regional banks, PacWest Bancorp, Fifth Third Bancorp, Western Alliance Bancorp and KeyCorp all lost ground.
U.S. Treasury Secretary Janet Yellen said the country’s banking system remains sound thanks to “decisive and forceful” actions following the collapse of Silicon Valley Bank (SVB).
In Europe, the region’s banking index was up 0.9% by 1530 GMT, after days of heavy losses due to investor fears over potential bank stresses across the world.
The unease spread beyond the financial sector, with German corporate treasurers urged by their industry association not to “underestimate the current situation.”
Since March 8, before last week’s collapse of Silicon Valley Bank (SVB), European banks have lost around $165 billion in market value, Refinitiv data shows.
Policymakers have emphasized that the present situation is different than the global financial crisis as banks are better capitalised and funds more easily available.
Allianz one of Europe’s biggest financial firms, said authorities were “well equipped” to deal with any liquidity crisis, “unlike what happened during” the global financial crisis of 2007 and 2008.
Credit Suisse said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank, which confirmed it would provide liquidity to Credit Suisse against sufficient collateral.
The move followed assurances from Swiss authorities that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks.”
Chief Executive Ulrich Koerner told Credit Suisse staff in a memo they should focus on facts as he pledged to move forward rapidly with a plan to streamline operations.
Switzerland’s second-largest bank would continue to focus on the transformation from a position of strength, Koerner said.
The bank’s stock market value has fallen by 90% since its peak in February 2007 of around $91 billion, to around $8.66 billion following a prolonged slide in its shares.
Analysts said the measures will buy time for Credit Suisse to carry out its planned restructuring and possibly take further steps to pare back the Swiss lender.
“We would not exclude the possibility of further restructuring statements from management designed to further simplify the bank,” Thomas Hallett at KBW said in a note.
Swiss media reported that Switzerland’s cabinet would hold an extraordinary meeting to discuss the situation. The government declined to comment.
Credit Suisse bankers contacted clients in Asia to reassure them after the latest inflow of funds.
“We’ve been telling them to read the statements and look at the fact that we are buying 3 billion francs’ worth of bonds because they are so cheap,” said a Hong Kong-based senior banker, who declined to be named.
The 167-year-old bank’s problems have shifted the focus for investors and regulators from the U.S. to Europe, where Credit Suisse led a bank share sell-off after its largest investor said it could not provide more funds due to regulatory constraints.
That broadened fears sparked by last week’s collapse of U.S. mid-sized lenders SVB and Signature Bank which sent bank stocks on a roller-coaster ride as investors feared another collapse like that of Lehman Brothers, the Wall Street giant whose failure sparked the global financial crisis.
The rush for the doors raised fears of a broader threat to the financial system, and two supervisory sources told Reuters that the ECB had contacted banks on its watch to quiz them about their Credit Suisse exposures.
The U.S. Treasury has also said it was monitoring the situation around Credit Suisse and was in touch with global counterparts, while policymakers in Australia and South Korea said banks in their jurisdictions were well-capitalised.
Investors are also focused on any action by central banks, with traders now betting that the Federal Reserve, which last week was expected to accelerate its interest rate hikes in the face of persistent inflation, may hit pause or reverse course.
Rapidly rising interest rates have made it harder for some businesses to pay back or service loans, increasing the chances of losses for lenders already worried about a recession.
(Reporting by Tom Westbrook in Singapore, Scott Murdoch in Sydney, John Revill in Zurich, Amanda Cooper in London, Saeed Azhar in New York and Tom Sims in FrankfurtAdditional reporting by Akriti Sharma in Bengaluru, Rae Wee in Singapore, Chiara Elisei and Dhara Ranasinghe in London, Vera Eckert and Ludwig Burger in Frankfurt, Yasmin Mehnaz in BengaluruWriting by Deepa Babington, Sam Holmes and Alexander SmithEditing by Tomasz Janowski and Matthew Lewis)