Credit Suisse share rebound loses steam in delicate truce with doubters
- Investors take solace from central bank lifeline
- AT1 dollar bond rally wanes, euro bonds hit new record lows
- JPMorgan analysts say takeover most likely next step
ZURICH/LONDON, March 16 (Reuters) - Credit Suisse shares (CSGN.S) rebounded on Thursday after getting a lifeline from the Swiss central bank to shore up investor confidence but the rally lost ground against a febrile backdrop.
The Swiss bank's announcement that it would make use of a $54-billion loan from the Swiss National Bank helped stem heavy selling in financial markets on Thursday and prompted a modest rally in European equities.
Some in the market welcomed the news, others were cautious. JPMorgan analysts said the loan from the SNB would not be enough to soothe investor concerns and the "status quo was no longer an option", leaving a takeover of Credit Suisse as the most likely outcome.
Last week's collapse of two regional U.S. banks has raised made investors and bank customers worry about the resilience of the financial system in the face of rising global interest rates.
Credit Suisse has seen a steady stream of withdrawals from wealthy clients, which Luis Arenzana, founder of Shelter Island Capital Management, told Reuters was not "necessarily a panicky reaction to recent events in the U.S. alone".
"CS has not earned its cost of equity since 2013. The bank has lost a cumulative 2.5 francs per share since. This is not the result of just one or two big one offs as the bank reported a loss for five out of nine of those years," Arenzana said.
Credit Suisse shares surged by as much as 32% in opening trade on Thursday after news of the lifeline. They retreated during the day and were last up 18% in heavy volume, reversing some of the losses on Wednesday that stripped a quarter off the bank's market value.
The bank's shares had tumbled after its biggest backer said it could not offer any more financial assistance for regulatory reasons. The shares have lost nearly 30% in 2023.
Credit Suisse said early on Thursday it would exercise an option to borrow from the central bank up to 50 billion Swiss francs ($54 billion).
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.
"This is a strong and important signal. We hope the measures will calm down markets and break the negative spiral," Bank Vontobel equity strategist Andreas Venditti said.
"However, it will take time to fully regain trust in the franchise," Venditti said.
The Swiss franc was last up 0.3% against the U.S. dollar on Thursday, having fallen by 2.2% on Wednesday in its biggest one-day drop since the central bank loosened its currency peg in early 2015.
JPMorgan analysts said that a takeover, especially by rival UBS , was the most likely scenario for Credit Suisse.
"We see SNB liquidity support as indicated last night as not enough and believe CSG’s situation is about ongoing market confidence issues with its IB strategy and ongoing franchise erosion," JPMorgan said.
"Counterparty concerns are starting to emerge as reflected by credit/equity market weakness," they said.
Credit Suisse's bonds and fixed income-linked instruments also showed signs of waning confidence as trading in Europe drew to a close.
Credit Suisse additional tier 1 dollar-denominated bonds - which had roared more than 10 cents higher in early trade - were up just over 6 cents by 1530 GMT, with all issues trading at deeply distressed levels of at, or below 30, cents on the dollar.
The bank's euro-denominated bonds dropped to new record lows, with shorter-dated bonds maturing in 2025 and 2026 down nearly 10 cents. ,
Credit default swaps - which provide insurance against default - were oscillating between 898 bps and 1016 bps on the day, reflecting market's difficulties in gauging risks facing the embattled bank.
Suvi Platerink Kosonen at ING said the usage of the SNB's liquidity facility sent a mixed signal.
"While it is comforting that the bank has access to liquidity it may need, it is also rather disturbing that it needs it," Kosonen said in a note to clients.
($1 = 0.9276 Swiss francs)
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