Credit Suisse Crisis: CS stock rallies 8% on 50 billion CHF lifeline from Swiss central bank

Swiss National Bank makes up to 50 billion CHF available to Credit Suisse.
CS stock rallies 8% on news in Thursday premarket.
UBS stock advances on news.
Premarket has Credit Suisse stock testing S2 support.

Clay Webster FXStreet

Credit Suisse Group (CS) stock rallied 8.3% to $2.34 early Thursday after the Swiss investment bank announced it could borrow up to 50 billion Swiss Francs (approximately $54 billion) from the Swiss National Bank. The liquidity, made available through a lending facility that requires pledged collateral, is meant to raise the market's faith in Credit Suisse after shares of the bank fell as much as 30% on Wednesday.

The regular session in Europe is much more bullish on the central bank's rescue policy, with Credit Suisse's main Swiss-based common share up 20% around lunchtime. Credit Suisse's ADR lost 13.9% on Wednesday after rallying late in the session.

Credit Suisse stock news: Market praises move by Swiss National Bank

Credit Suisse has witnessed months of client outflows over the past year, although CEO Ulrich Korner said an influx of client money followed the collapse of Silicon Valley Bank (SVB) last week. Korner has made it known that his bank is not in a similar situation to that bank and has repeatedly stated that Credit Suisse's "liquidity base is very, very strong."

The Swiss bank did tout its Common Equity Tier 1 capital ratio of 14.1% and average liquidity coverage ratio of 144%. As recently as Tuesday, Credit Suisse said its average liquidity coverage ratio had risen to 150%. Those facts were no match, however, for a market bent on worry about the health of the banking sector following the high-profile failures of first Silvergate Capital (SI), then Silicon Valley Bank (owned by SVB Financial (SIVB)) and Signature Bank (SBNY) over the past month in the US.

"Credit Suisse is taking decisive action to pre-emptively strengthen its liquidity by intending to exercise its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility as well as a short-term liquidity facility, which is fully collateralized by high-quality assets," Credit Suisse said in a statement.

Besides using the funding from the central bank for corporate operations, management said it would first focus on retiring up to 3 billion Swiss Francs worth of debt obligations. BNB Paribas has begun refusing to take derivatives contracts that have Credit Suisse as a counterparty. On Wednesday, 5-year CDS for Credit Suisse bonds rose to 1,367 basis points, but by Thursday it had fallen to 900 basis points.

Fellow Swiss powerhouse UBS Group (UBS) is also advancing marginally in the premarket after losing 6.3% on Wednesday.

Credit Suisse stock forecast

The 4-hour chart below shows Credit Suisse stock attempting to break above the S2 support at $2.36. If bulls are able to break through here, and the regular session should put the US shares more in line with their Swiss counterpart, then bulls will focus on reaching the S1 support at $2.51. From there the 21-candle moving average on the 4-hour chart sits near $2.60, and the pivot is up at $2.76. If Credit Suisse stock backtracks once again, then expect the S3 around $2.11 to provide support.

Credit Suisse 4-hour chart

Author

Clay Webster

FXStreet

Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.

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