Shares rallied in London on Thursday after the Swiss authorities launched an emergency £45 billion rescue of one of its biggest banks to avert a global financial crisis.
The move to bail-out stricken Credit Suisse came in the early hours after days of turmoil on the global financial markets that was threatening to spiral into a full-blown crash. Europe’s 16th biggest bank said it would have access to 50 billion Swiss francs (£44.6 billion) of funding from the Swiss National Bank to shore up its balance sheet.
The bank, which has as many as 7,000 staff working in London, mostly at Canary Wharf, called the loan a “decisive action to pre-emptively strengthen its liquidity”.
It came after one of the most tumultuous weeks on financial markets since the Lehman disaster 15 years ago, with some traders fearing that the rescue is only a short-term fix with the stability of more major banks likely to come under scrutiny in the coming days.
But the move eased the panic that has gripped markets across the world this week with hundreds of billions of pounds wiped off the value of banks, including more than £20 billion from UK lenders.
In the City the FTSE-100 initially opened up around 100 points before the rally began to run out of steam. By mid-morning the index was up 0.7 per cent or 50.30 points to 7394.75.
Shares in Credit Suisse, which tumbled almost a third yesterday, were up 19 per cent in early trading today. The fast-developing drama in the markets overshadowed Jeremy Hunt’s first Budget as Chancellor, amid concerns about the risk of contagion to UK banks.
Bank of England governor Andrew Bailey was following the Credit Suisse crisis “very closely” but news of a huge intervention by the Swiss central bank was “encouraging,” Mr Hunt said this morning.
Asked if he was worried about the risk of contagion to British banks, the Chancellor told Sky News: “Chancellors never comment on what is happening in the markets.
“Obviously, I’m following the situation, the Governor of the Bank of England is following it very closely. The news we have heard from the Swiss authorities this morning is encouraging but I won’t say any more than that.”
Sir John Gieve, a former deputy governor of the Bank, told the BBC’s Today programme: “What we’ve seen overnight is the Swiss central bank saying ‘No, we will not let this get into a disorderly collapse’.”
But City experts said that vast paper losses in the sector — which stem from the collapse in the value of government bond holdings as central banks hike interest rates — were still hanging over lenders of all sizes.
“Confidence is slow to build but quick to shatter,” said Richard Hunter, head of markets at Interactive Investor. “The next few days will be critical in determining sentiment, with no news being good news within the banking sector, where it is still hoped that the issues seen so far are isolated and contained.”
The crisis began a week ago when America’s Silicon Valley Bank collapsed. Its UK arm was bought by HSBC for £1 at the weekend to prevent dozens of British tech firms falling into insolvency.
Susannah Streeter, head of markets at fund manager Hargreaves Lansdown, said: “Credit Suisse is the first major bank deemed too big to fail to take up the offer of an emergency lifeline. The announcement that it will draw on emergency funds from the Swiss national bank underlines how fragile the lender had become.”
