Credit Suisse shares jump 30% after securing US$54bil lifeline
Analysts at JPMorgan say that a takeover is the most likely option to regain market trust.
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The Swiss National Bank’s lifeline helped stem heavy selling in Asian morning session.
ZURICH: Credit Suisse shares soared by at least 30% in premarket trading on Thursday after the company secured a US$54 billion lifeline from the Swiss National Bank to shore up liquidity and investor confidence that sent its stock to record lows the day before.
JPMorgan analysts said the loan from the SNB would not be enough to soothe investor concerns and “status quo was no longer an option”, leaving a takeover for Credit Suisse as the most likely outcome.
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Credit Suisse shares were indicated at 2.18 Swiss francs (US$2.16), up 26% from Wednesday’s close. The stock fell by as much as 30% the previous day after Credit Suisse’s largest backer said it could not offer any more financial assistance for regulatory reasons.
The Swiss bank’s announcement overnight helped stem heavy selling in financial markets in Asian morning trade on Thursday.
In its statement early Thursday, Credit Suisse said it would exercise an option to borrow from the central bank up to 50 billion Swiss francs (US$54 billion).
That followed assurances from Swiss authorities on Wednesday that Credit Suisse met “the capital and liquidity requirements imposed on systemically important banks” and that it could access central bank liquidity if needed.
“Following yesterday’s extreme share price volatility, Swiss authorities offered their support. This is a strong and important signal. We hope the measures will calm down markets and break the negative spiral,” Bank Vontobel equity strategist Andreas Venditti said.
“However, it will take time to fully regain trust in the franchise. We will update our financial/valuation models to reflect the impacts of recent events and a higher risk perception in the financial sector (higher cost of equity),” Venditti said.
The cost of insuring against the risk of default on Credit Suisse bonds blew out to distressed levels on Wednesday, while banking shares around the world, which had already been pummeled by the collapse of two regional US lenders in the last week, tumbled.
Stock futures, however, pointed to a sharply higher open for European equity markets on Thursday.
Analysts at JPMorgan said in a note that a takeover was the most likely scenario for Credit Suisse, especially by rival UBS.
“We see SNB liquidity support as indicated last night as not enough and believe CSG’s situation is about ongoing market confidence issues with its IB strategy and ongoing franchise erosion,” JPMorgan said.
“In our view, status quo is no longer an option as counterparty concerns are starting to emerge as reflected by credit/equity market weakness,” they said.
