Instant view- Credit Suisse to borrow up to $54 billion to boost liquidity

SINGAPORE (Reuters) – Credit Suisse said on Thursday it was taking “decisive action” to strengthen its liquidity by borrowing up to $54 billion from the Swiss central bank after a slump in its shares intensified fears about a broader bank deposit crisis.

Efforts by regulators and financial executives to ease contagion fears sparked by last week’s collapse of Silicon Valley Bank (SVB) had brought some brief stability to markets, but worries over Credit Suisse on Wednesday brought back jitters about a banking crisis.

Here are some comments from market analysts:

REDMOND WONG, GREATER CHINA STRATEGIST AT SAXO MARKETS, HONG KONG

“Credit Suisse has its own issues, which do not necessarily spill over into systemic risks of the European banking system. Nonetheless, existential questions about a large international bank based in Europe soon after the closure of a couple of banks across the pond in the U.S. certainly stirred up risk-off sentiment and caused volatility in the European markets. A major risk in the near term is the impact on liquidity in the interbank market and the credit market.”

TONY SYCAMORE, MARKET ANALYST AT IG GROUP, SYDNEY

“In terms of where Credit Suisse finds itself, it’s got to get itself out of the rut that it’s in and it’s been in this rut for over a decade. It’s going to take up the SNB’s offer for 50 billion Swiss franc, which will certainly stem the tide in the short term. Whether it’s enough to solve Credit Suisse’s problems in the longer term probably is debatable.”

    “Whether it will spread to other banks, with the French banks, I don’t think so. I think they certainly learned their lessons through the European sovereign crisis.”

    “What this has done is we’re going to have tighter lending standards. And, we’re going to have more regulations about lending. That means, there’s less money pumping into the economy, which is effectively deflationary. And, it is also going to restrict growth. So in some respects, the banking crisis over the past seven days has done much of the heavy lifting, which the central banks were going to need to undertake.”

MARTY DROPKIN, HEAD OF EQUITIES FOR ASIA PACIFIC AT FIDELITY INTERNATIONAL, HONG KONG

    “Markets could get messy amid the fallout from Silicon Valley Bank’s collapse, alongside ongoing uncertainty over the future path of the global economy and interest rates. The global equity rally since the beginning of the year has faded after a bruising pullback last month, with persistently sticky inflation and hot labour markets forcing market participants to change their outlook on the path of interest rates.”

CHARU CHANANA, MARKET STRATEGIST, SAXO MARKETS, SINGAPORE

    “What’s unfolding at Credit Suisse and the market response is a signal of how vulnerable sentiment is at this point. Broadly, this is sending shockwaves about where growth is headed from here, and that will also bring Asian markets under pressure. Meanwhile, the offset from China isn’t proving enough as data hasn’t really outperformed expectations for now.”

JARROD KERR, CHIEF ECONOMIST, KIWIBANK, AUCKLAND

    “Markets will continue to be hypersensitive to developments around Credit Suisse and other banks. There’ll be heightened volatility and fear, and the job of central banks and governments is to come out strongly – as they have been doing – and say look, we’re here to make sure that these banks don’t go bust, we’re here to make sure there’s enough liquidity in the system that we don’t see runs on banks.”

ROBERT CARNELL, REGIONAL HEAD OF RESEARCH FOR ASIA PACIFIC, ING, SINGAPORE:

    “From everything you’ve seen last night, the market is still in a very febrile state. And of course, we have the ECB today… So, we’ve got to get through ECB and see how that goes down. And then the impact of that may well impact on what we think about the Fed next week.”

“I think it’s going to be a very volatile period until we get this out of the way. The thing that’s keeping markets on their toes is we had SVB, then Signature Bank closing down, now it’s Credit Suisse. What next? It feels like at these interest rate levels the risk of finding that you’ve lifted a stone and something ugly is underneath gets higher.”

SHIGETOSHI KAMADA, GENERAL MANAGER AT RESEARCH DEPARTMENT AT TACHIBANA SECURITIES

“There had been little reasons for selling Japanese stocks unless we hadn’t had any concerns about the financial systems in the U.S. and Europe. But main players in Japan’s stock market are foreigners, so the Japanese market will depend on their investment strategy.”

MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE

“Like Deutsche Bank, Credit Suisse has been a ‘failing bank’ as long as I can remember. Yet, both are still here. And now, CS has the clout of (the) Swiss National Bank covering its back, which is a central bank that doesn’t not mess around in the time of crisis.”

“So ultimately, I think this is a good thing for market sentiment. I’m just not sure if or when investors will draw the same conclusion with all the emotion in the air. There’s still very much a feeling of react first, think later. And that’s not always compatible with logic.”

GARY NG, SENIOR ECONOMIST, NATIXIS CORPORATE AND INVESTMENT BANK, HONG KONG

“Investors may be worried about SVB and Credit Suisse for different reasons, but both cases suffer from the side effect of high-interest rates. The underlying economic stress may emerge more frequently, so as liquidity, and it is possible to see more black swans in an uncertain environment.”

“Quick actions from central banks can mitigate the adverse impact on a case-by-case basis, but it is also time for the world to accept higher-than-average inflation and keep financial stability.”

DAMIEN BOEY, CHIEF EQUITY STRATEGIST, BARRENJOEY, SYDNEY:

“It does help. It removes an immediate risk. But it confronts us with another choice. The more we do this, the more we blunt monetary policy, the more we have to live with higher inflation — and what is it going to be?

“Do bailouts make things better? On one hand, you are removing a source of risk to the markets, which is a clear and present danger. On the other hand, we are feeding into this paradigm of monetary policy bucking within itself.”

CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE

“The concrete response from Swiss authorities may help to shore up sentiments in the interim. That helps with a modest bounce in the euro and some risk-proxy in Asia ex-Japan. But it remains to be seen if they are sufficient to shore up confidence.”

(Reporting by Ankur Banerjee, Tom Westbrook and Rae Wee in Singapore; Xie Yu, Georgina Lee, Kane Wu and Summer Zhen in Hong Kong and Junko Fujita in Tokyo; Editing by Subhranshu Sahu)