Swiss central bank backs Credit Suisse

This is an audio transcript of the FT News Briefing podcast episode: ‘Swiss central bank backs Credit Suisse’

Sonja Hutson
Good morning from the Financial Times. Today is Thursday, March 16th, and this is your FT News Briefing.

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US and European bank shares tumbled yesterday again and Credit Suisse was hit so badly that Switzerland’s central bank stepped in with a safety net. UK chancellor Jeremy Hunt plans to expand free childcare. Here’s what the FT’s Claer Barrett had to say about that.

Claer Barrett
Bravo to Mr Hunt for trying. Let’s hope it works out.

Sonja Hutson
Plus, Volkswagen is investing even more in electric cars, just in time to cash in on Washington’s green tech subsidies. I’m Sonja Hutson, in for Marc Filippino, and here’s the news you need to start your day.

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European bank shares had a rough day yesterday, but Credit Suisse was hit particularly hard. It wasn’t just the broader banking jitters. Credit Suisse’s top shareholder, the Saudi National Bank, said it won’t give the Swiss lender any more financial assistance. Credit Suisse’s shares fell as much as 30 per cent. And then after the market closed, Switzerland’s central bank stepped in to say it would provide a liquidity backstop. The FT’s European banking correspondent Owen Walker says that sent a very strong signal.

Owen Walker
That the Swiss central bank is standing behind Credit Suisse — Credit Suisse will not be able to fail, it’s saying. And the expectation, I’m sure, within Credit Suisse and within policymakers in Zurich and Bern, is that this statement will enable the share prices to really pick up and ultimately reduce the fear and the wariness among Credit Suisse customers that they need to pull their money out because they essentially know that the central bank has got Credit Suisse’s back.

Sonja Hutson
So, Owen, what can you tell us about why the Saudi National Bank refused to give Credit Suisse any more capital in the first place?

Owen Walker
I mean, this is really down to a clumsy comment made by the chair of the Saudi National Bank on Wednesday morning. He was asked quite directly if Credit Suisse had any liquidity problems with the Saudi National Bank, stepped in with additional funding, and he said, no, absolutely not. There’s lots of reasons. And then he clarified that the main reason was that if they were to do so, they would end up owning more than 10 per cent of Credit Suisse stock, which would create lots of kind of regulatory hassle for them. But this was very much taken as a point of lack of confidence in the bank. And that’s really probably been the main reason for this sell-off. Though the fundamental reason is very much a hangover from lack of confidence in global banking in the US and Europe in particular following the collapses in banks we saw in the US last week.

Sonja Hutson
Now the context to all this is the collapse last week of Silicon Valley Bank and two other small banks. How does that fit in with what happened at Credit Suisse yesterday?

Owen Walker
What you saw last week was three specialist banks in the US failing because they had runs on their deposits so that their customers were pulling money out and they had their own problems with their own sort of investment strategies and assets they held. Now what that has led is to a lot of investors to speculate that this contagion could spread to the wider US banking sector, but also to Europe. And ever since Friday, we’ve seen share prices at the biggest banks in Europe and the US really hit hard. And that really culminated on Wednesday with many of the European banks suffering up to 8, 9, 10 per cent share price falls. Credit Suisse was the outlier falling, you know, at one point over 30 per cent. And it was really . . . Investors were kind of turning their attention to the banks they felt were most fragile and most insecure and really targeting them to pull their investments from them and hence the cratering share prices.

Sonja Hutson
Owen Walker is the FT’s European banking correspondent.

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UK chancellor Jeremy Hunt presented his budget for growth yesterday. He set out measures to try and boost the country’s struggling economy. Among them is a £4bn expansion of free childcare. Childcare costs have risen too high for many families and many nurseries have closed. To find out how much the chancellor’s plan will help, I’m joined by the FT’s Claer Barrett. She hosts the FT’s Money Clinic podcast. Hi, Claer.

Claer Barrett
Hi. Good to speak to you.

Sonja Hutson
So what exactly is Hunt’s proposal?

Claer Barrett
OK, so just to give you a little flavour of how it works now, if your child is three or four, you can access these 30 free hours of childcare per week from a nursery. What they’ve announced is that the 30 so-called free hours won’t just be for three- and four-year-olds in the future. They’ll be free for children as young as nine months old, going all the way up to the age of five. This is gonna be a game-changer for parents. But the chancellor has got some pretty tough timetables that he needs to hit. He wants to have the whole system in place by September 2025, but the problem is the nursery provision, which is largely private businesses in the UK, has been decimated during the pandemic and afterwards because of this funding issue. And we need to build back the infrastructure that we’ve lost.

Sonja Hutson
Can the government afford this?

Claer Barrett
Well, I think it’s more a question of can the government afford not to do this? Because if we don’t change the way that childcare is run and organised in this country, we’re just gonna see the population crash because at the moment the choice is really have a baby and be financially screwed or don’t have one because those costs that we were talking about are so vast unless you can rely on free support from family members, perhaps your parents live nearby, or as I said, you take that decision to give up work or to work part-time. There’s no way of squaring the circle. And millions of women are being forced to do that. But the other cost that worries me as a personal finance expert is the cost, particularly to women’s careers, to their lifetime earnings. The biggest reason that women don’t invest more money is because they don’t have the disposable income to invest. They need every penny that they earn. So bravo to Mr Hunt for trying. Let’s hope it works out.

Sonja Hutson
Claer Barrett is the host of the FT’s Money Clinic podcast. Thanks, Claer.

Claer Barrett
Thank you.

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Sonja Hutson
German carmaker Volkswagen is increasing its investment in electric vehicles. The world’s second-largest carmaker said that over the next five years it would invest €180bn on electric vehicles, battery production and expanding in the US and China. Here’s the FT’s Frankfurt correspondent, Patricia Nilsson, with details.

Patricia Nilsson
I mean, all carmakers are racing to develop electric vehicles, especially those in Europe, as the European Union is planning to ban combustion engines by 2035. Volkswagen is quite a unique carmaker because it’s decided to manufacture its own battery cells, which, of course, is something that a carmaker’s not very used to doing.

Sonja Hutson
What’s been the reaction to VW’s plans to expand in China? I know there has been concern in Germany about companies being too dependent on China.

Patricia Nilsson
I mean, it’s hard for these companies because China is one of the fastest growing countries in the world of that size. I mean, Volkswagen is currently making about 60 per cent of their profits in China. So, you know, it’s not really an alternative for them to tell their investors that, you know, we’re just gonna stop selling cars in that market. The company has been saying that it’s diversifying away. But this announcement is showing that China is still very important to the company.

Sonja Hutson
The other notable announcement from VW this week was about its plan to build a battery factory in Canada. And one reason the company chose Canada is because it can qualify for US subsidies there. How much of a blow to Europe is that?

Patricia Nilsson
We knew, or Volkswagen kind of indicated before that it would be building battery plants in North America as well, as it sells cars there. However, we had been expecting them to move forward with a new plant in eastern Europe first and Volkswagen did in meetings with EU officials a kind of signal that the subsidies that they can get in North America had been a driving factor in them deciding to move forward there faster. It was also quite interesting, Oliver Blume, the chief executive of Volkswagen, said yesterday they had also struck a separate tax incentive deal with the Canadian government. So this is a time when companies are really able to kind of play governments against each other and extract as much state support as possible.

Sonja Hutson
Patricia Nilsson is the FT’s Frankfurt correspondent.

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You can read more on all these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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