Credit Suisse Thrown $54 Billion Lifeline in Rush to Ward Off Global Bank Crisis

Credit Suisse (CSGN.S) said on Thursday it would borrow up to $54 billion from Switzerland’s central bank to shore up liquidity and investor confidence, after a slump in its shares had intensified fears about a global banking crisis.

As reported on Reuters, the bank’s announcement, which came in the middle of the night in Zurich, prompted a 24% rise in Credit Suisse shares and helped reverse some of the heavy losses on stock markets driven by investor fears over potential bank runs across the world.

Credit Suisse 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 their fight against inflation with aggressive interest rate hikes.

Switzerland’s second-largest bank said it would exercise an option to borrow up to 50 billion Swiss francs ($54 billion) from the central bank.

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.

JP Morgan analysts said that the measures will buy the Swiss lender time to carry out its restructuring.

“The combination of measures should be sufficient to stem the negative moves across the capital structure as the market priced in the potential impact of liquidity pressures,” JP Morgan said in a note on Thursday.

While its shares bounced back, the cost of insuring exposure to Credit Suisse debt tumbled. Five-year credit default swaps were down 128 basis points to 1,016 bps from Wednesday’s close after hitting record highs that day.

The European banking index <.SX7P) was up 2.4% following the dramatic Swiss intervention, with big bank stocks rising and insurance protection on bonds issued by BNP Paribas (BNPP.PA), Deutsche Bank (DBKGn.DE) and UBS also edging back down.

Throughout most of the Asian day, stocks had wallowed in the red as investors rushed to the relative “safe havens” of gold, bonds and the dollar. While Credit Suisse’s announcement helped trim some losses, trade was volatile and sentiment fragile.

The head of Japan’s banking lobby said that there were no signs at the moment of the Japanese financial system being affected by a crisis of confidence in Credit Suisse, as Japanese banks are well-capitalised.

Credit Suisse’s borrowing will be made under the covered loan facility and a short-term liquidity facility, fully collateralised by high quality assets. It also announced offers for senior debt securities for cash of up to 3 billion francs.

Chief Executive Ulrich Koerner told Credit Suisse staff in a memo they should focus on facts as he pledged to rapidly move forward with a plan to streamline operations.

Credit Suisse would continue to focus on the transformation from a position of strength, citing an improved liquidity coverage ratio and recent capital raisings, Koerner said.