Credit Suisse $54 billion lifeline offers limited respite to global banks

Credit Suisse sought to shore up its liquidity and restore investor confidence on Thursday by borrowing up to $54 billion from Switzerland's central bank, after a slump in its shares had intensified fears of a global banking crisis.

Following the bank's announcement, which came in the middle of the night in Zurich, Credit Suisse shares briefly bounced back from Wednesday'’ 25 per cent wipe out, but ceded some ground by late morning.

The European banking index, initially rose following the intervention, but was virtually flat by 1130 GMT.

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 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 Swiss National Bank, which confirmed it would provide liquidity to Credit Suisse against sufficient collateral.

The move followed assurances from Swiss authorities on Wednesday that Credit Suisse met ‘the capital and liquidity requirements imposed on systemically important banks’.

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, Koerner said, citing an improved liquidity coverage ratio and recent capital increases.

Analysts said that the measures will buy Credit Suisse time to carry out its planned restructuring, although there could well be further moves to pare down the Swiss lender.

"While a liquidity boost relieves some near term pressure, most of the concerns around the stock before the recent events are still valid (weak profitability)," Thomas Hallett at KBW said in a note to clients. "We would not exclude the possibility of further restructuring statements from management designed to further simplify the bank."

As its shares regained some of the ground lost on Wednesday, when they dropped by as much as 30%, the cost of insuring exposure to Credit Suisse debt tumbled from record highs.

Insurance protection on bonds issued by BNP Paribas , Deutsche Bank and UBS also inched back down.

Swiss media reported that Switzerland's cabinet would hold an extraordinary meeting on Thursday to discuss the situation at Credit Suisse. The government declined to comment.

Stocks had wallowed in the red as investors rushed to the relative "safe havens" of gold, bonds and the dollar through most of the Asian day. 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 of the Japanese financial system being affected by a crisis of confidence in Credit Suisse.

In Asia, Credit Suisse bankers contacted clients to reassure them after the latest inflow of funds.

"We've been telling them to read the statements and look at the fact that we are buying 3 billion francs worth of bonds because they are so cheap," said a Hong Kong-based senior banker, who declined to be named.