Views from Peter Casanova, Equity Research

"Credit Suisse announced that it will access CHF 50bn of liquidity from the Swiss National Bank (SNB). This liquidity will be accessed via the Covered Facility and a short-term liquidity facility, secured against collateral and is equivalent to ca 22% of the bank’s deposits, which is significant.

As a measure to arguably demonstrate confidence in its liquidity situation, the bank also announced that it will repurchase CHF 3bn of debt securities (2% of total outstanding long-term debt) and will generate a capital gain. The bank notes that its liquidity coverage ratio (high quality liquid assets as a share of potential 30-day stressed outflows) had improved further, from a high of 144% in FY 2022 to 150% on 14 March 2023. Of the CHF 50bn new facility, CHF 39bn will immediately count towards the LCR. Following these actions, we estimate that the bank will have a liquidity coverage ratio of more than 190% and high-quality liquid assets equivalent to ca 70% of deposits, which might help to put depositors’ and bondholders’ fears to rest for the time being." 

Views from Mathieu Racheter, CFA, CAIA, Head of Equity Strategy Research

"As explained by my colleage Peter Casanova, bank stocks have come under renewed selling pressure amid woes surrounding Credit Suisse, which intensified investor concerns around the health of the banking sector. This comes just days after the spectacular collapse of Silicon Valley Bank (SVB). Investors continue to press the panic button, as they fear that other banks might as well be affected by insufficient liquidity on the asset side to cover accelerating deposit withdrawals.

While uncertainty will likely remain high in the short term, we would refrain from being overly pessimistic. In fact, the issues surrounding SVB appear idiosyncratic, given its large exposure to long-duration instruments in its bond portfolio, which is an extreme anomaly compared to industry averages. An unusually high portion of interest-earning assets at SVB (around 50%) were in bond investments and only around 35% were in loans, while normal banks have a range of 10%–30% for bonds and 60%–90% for loans.

European depositors are more inertial, the portion of retail deposits is usually large and abundant, and deposit trends have been stable. Moreover, the European banks have significant deposit holdings at the ECB; hence, there is no need to liquidate bonds at a loss. Last but not least, regulation around asset-liability management is also stricter in Europe and applies to both large and smaller banks. This reduces the risk of a mismatch. Against this backdrop, we reiterate our preference for European over US banks."