By Swissquote Analysts
Credit Suisse Will Borrow Up to $53.7 Billion
Topic of the day
Credit Suisse Group, the Swiss bank whose shares tumbled Wednesday as fears about the health of global banks jumped the Atlantic Ocean, said it would exercise its option to raise as much as 50 billion Swiss francs, equivalent to $53.7 billion, from the Swiss National Bank in a bid to stanch liquidity concerns. The firm, based in Zurich, called the decision a “decisive action to pre-emptively strengthen its liquidity.” Credit Suisse added that the move “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.” Investors will be closely watching the reaction when Europe reopens for trading Thursday morning, following another day in markets dominated by concerns that global banking problems may be on the verge of bringing the economic expansion to an end. Credit Suisse also said it would buy back some debt securities in a bid to reduce interest expense and take advantage of the depressed prices of many of its bonds. The firm said tender offers would cover 10 senior U.S. dollar bonds worth $2.5 billion and four senior euro bonds worth 500 million euros, or about $529 million. The firm billed the borrowing and debt tenders as “decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders.” The Swiss bank’s 9.75% bond lost more than half its value Wednesday to trade at 30 cents on the dollar, according to MarketAxess.
On Wednesday, the Swiss stock market, similar to the other stock exchanges in Europe, experienced a steep decline. Credit Suisse played a significant role. After the bank, which has been struggling with problems and a loss of confidence for some time, had admitted accounting weaknesses only the day before, the major shareholder Saudi National Bank now ruled out further investments in the ailing bank according to the news agency Bloomberg, because a larger shareholding would entail additional regulatory hurdles. The SMI lost 1.9 per cent to 10,516 points. Among the 20 SMI stocks, there were 16 price losers and 4 price gainers. 325.32 (Tuesday: 106.73) million shares were traded. According to financial information and analysis firm Morning Star, credit default premiums on Credit Suisse are pricing in the possibility of a default at this stage. However, a split or recapitalization of the bank is more likely, the analysts added. Credit Suisse's share price plummeted by more than 30 per cent at times and was down 24.2 per cent by the end of trading. In the wake of the Credit Suisse share price debacle, UBS lost 8.7 and Julius Baer 7 percent. Insurance stocks also recorded marked losses. Swiss Life fell by 5.8 per cent and Swiss Re by 5.1 per cent. Zurich Insurance shed 4.1 per cent, as did Partners Group. In the SMI, pharmaceutical stocks Roche (unchanged) and Novartis (+0.8%), which are considered less cyclical, were able to escape the downward spiral, as were Nestle (+0.1%) and Swisscom (+0.4%). Givaudan (+1.2%) was the daily winner in the absence of news.
European stocks retreated on Wednesday as investors weighed some mixed corporate results, with caution dominating markets ahead of this week's European Central Bank policy decision. The Stoxx Europe 600 index closed down 2.9% at 436.5 points. In Paris, the CAC 40 and the SBF 120 both fell by 3.6%. The Paris stock exchange's flagship index broke the 7,000-point barrier for the first time since the end of January. The DAX 40 in Frankfurt dropped 3.3%, while the FTSE 100 in London fell 3.8%. In Paris, Société Générale and BNP Paribas plunged 12.2% and 10.1% respectively, while Crédit Agricole shed 5.2%. German banks Deutsche Bank and Commerzbank declined by 9.3% and 8.7% respectively. The diversified Bolloré group (+8.3%) announced its intention to buy back 9.78% of its share capital in a simplified takeover bid, after recording an exceptional capital gain in 2022 from the sale of its transport and logistics activities in Africa. Yves Perrier has stepped down as chairman of the board of Amundi (-5.7%), the management company reported. The construction and concessions group Vinci (-4.4%) confirmed the continued recovery of its airport business and a decline in traffic on its motorways in February. Swedish fashion group Hennes & Mauritz, or H&M (-8.5% in Stockholm), reported slightly higher-than-expected revenue growth in the first quarter of its 2022-2023 financial year on Wednesday. Spanish ready-to-wear group Inditex (-5.1% in Madrid) signaled on Wednesday that its sales momentum had continued in the early part of the 2023-2024 financial year and that it would increase its dividend for the 2022-2023 financial year.
Fallout from the banking storm whipsawed stocks, bonds and commodities Wednesday as investors fled to the relative safety of the U.S. Treasury market. Credit Suisse led a rout in European banking shares and U.S. stocks before Swiss regulators offered to shore up the bank, stoking a rebound. The S&P 500 ended the day down 27.36 points, or 0.7%, and the Dow Jones Industrial Average fell 280.83 points, or 0.87% - recovering more than half their intraday losses - while the Nasdaq Composite rebounded sharply and eked out a 0.05% gain. The nascent recovery in regional U.S. banking stocks ran out of steam. First Republic Bank, whose shares started tanking last week after investors zeroed in on its similarity to SVB, fell an additional 21%. Some of the nation’s biggest banks also declined, including Citigroup, down 5.4%, and Wells Fargo, which fell 3.3%. Technology stocks led the way higher with Netflix Inc. gaining 3% to close at $303.79. Charles Schwab Corp. , which had been caught in the earlier bank selloff rose 5.1% to $59.55. T-Mobile US has announced plans to acquire prepaid brands Mint Mobile and Ultra Mobile, as well as distributor Plum. T-Mobile intends to purchase the parent company of these companies, Ka'ena Corp, for $1.35 billion. A profit warning pushed the share of the fashion company Guess down by 5.4 per cent. The financially troubled wholesaler Boxed has to decide whether to sell or file for insolvency. The share price plummeted by around 50 per cent. A disappointing outlook dragged down the share price of the technology company Luna by 32 per cent.
Concerns about a financial crisis weighed on the stock markets in Asia on Thursday. The Nikkei-225 loses 0.9 per cent to 26,973 points, weighed down by the financial sector. Sumitomo Mitsui Trust falls 6.1 per cent and Dai-ichi Life Holdings 6.6 per cent. Japan Post Bank sheds 7.1 per cent and slips below the issue price. In China, the HSI in Hong Kong drops 1.3 per cent and the Shanghai Composite 0.6 per cent. In South Korea, the Kospi declines by 0.2 per cent, recovering markedly from the lows during the trading session. Financial stocks are also under pressure here. Hana Financial Group slips 3 per cent.
U.S. bond yields dived on Wednesday as troubles at Swiss banking giant Credit Suisse reverberated around financial markets and prompted traders to factor in a full percentage point of rate cuts from the Federal Reserve by year-end. The 2-year Treasury note slid by 31 basis points; the 10-year Treasury note declined by 16 basis points to 3.472 per cent. It had recently been above 4 per cent. The 2-year Swiss Confederation bond yield was last quoted at 1.062 and the 10-year at 1.135 per cent.
Target price Clariant: Goldman Sachs lowers to CHF 18.20 (19.70) - Buy
Target price Inficon: UBS raises to CHF 1100 (1010) - Buy
Target price Temenos: Goldman Sachs lifts to 66 (58) Fr. - Neutral
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