How years of turbulence came to a head

  • Credit Suisse is currently undergoing a massive strategic review in an attempt to address chronic problems.
  • The stock has been in sustained decline since the crisis, on the back of the investment banks’ underperformance and a large number of scandals and risk management failures.
  • On Wednesday evening, Credit Suisse announced that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank.
  • Wednesday’s close at 1.697 Swiss francs per shares fell nearly 98% from the stock’s all-time high in April 2007.
The logo of Swiss bank Credit Suisse is seen on an office building in Zurich, Switzerland on February 21, 2022.

Arnd Wiegmann Reuters

Credit Suisse received a liquidity lifeline from the Swiss National Bank this week after its share price plunged to a record low, but the struggling lender’s road to the brink has been long and tumultuous.

The announcement that Credit Suisse would borrow up to 50 billion Swiss francs ($54 billion) from the central bank came after consecutive sessions of sharp falls in the share price. It made Credit Suisse the first major bank to receive such an intervention since the 2008 global financial crisis.

The bank’s shares ended Wednesday at 1,697 Swiss francs – down almost 98% from the stock’s record high in April 2007, while credit default swaps, which insure bondholders against a company’s default, rose to new record highs this week.

It comes after years of underperformance in the investment banking sector and a host of scandals and risk management failures.

Scandals

Credit Suisse is currently undergoing a massive strategic review in an attempt to address these chronic problems. Current CEO and Credit Suisse veteran Ulrich Koerner took over from Thomas Gottstein in July as poor investment banking results and rising litigation continued to hit earnings.

Gottstein took the reins in early 2020 following the resignation of predecessor Tidjane Thiam in the wake of a bizarre spying scandal in which UBS-linked former wealth management chief Iqbal Khan was pursued by private contractors allegedly at the behest of former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private investigator and the resignation of a number of executives.

The former head of Credit Suisse’s domestic flagship bank, widely seen as a steady hand, Gottstein sought to put to rest an era plagued by scandal. That mission was short-lived.

In early 2021, he found himself dealing with the fallout from two huge crises. The bank’s exposure to the collapses of US family hedge fund Archegos Capital and UK supply chain finance firm Greensill Capital saddled it with massive litigation and repayment costs.

These oversight failures resulted in a massive shake-up of Credit Suisse’s investment banking, risk and compliance and asset management departments.

In April 2021, the former CEO of Lloyds Banking Group, Antonio Horta-Osorio, was brought in to clean up the bank’s culture after the series of scandals, and announced a new strategy in November.

But in January 2022, Horta-Osorio was forced to resign after being found twice to have breached Covid-19 quarantine rules. He was replaced by UBS director Axel Lehmann.

The bank embarked on another costly sweeping transformation project as Koerner and Lehmann set out to return the troubled lender to long-term stability and profitability.

This included the spin-off of Credit Suisse’s investment banking division to form the US CS First Boston, a significant reduction in exposure to risk-weighted assets and a capital increase of 4.2 billion. become the largest shareholder.

March Madness

Credit Suisse reported a full-year net loss of 7.3 billion Swiss francs for 2022, forecasting another “substantial” loss in 2023 before returning to profitability in 2024.

Reports of liquidity concerns late in the year led to huge outflows of assets under management, which hit 110.5 billion Swiss francs in the fourth quarter.

After another sharp share price decline on the back of the annual results in early February, Credit Suisse shares in March 2023 were trading at a paltry 2.85 Swiss francs per share. stock, but things were about to get even worse.

On March 9, the company was forced to delay its 2022 annual report after a late call from the US Securities and Exchange Commission regarding a “technical assessment of previously published revisions to the consolidated cash flow statements” in 2019 and 2020.

The report was eventually published the following Tuesday, with Credit Suisse noting that “material weaknesses” were found in its financial reporting processes for 2021 and 2022, although it confirmed that its previously announced accounts were still accurate.

Having already suffered the global risk-off shock from the collapse of US Silicon Valley Bank, the combination of these remarks and confirmation that outflows had not reversed exacerbated Credit Suisse’s share price losses.

And on Wednesday it went into freefall when top investor Saudi Arabia’s National Bank said it was unable to provide more money to Credit Suisse due to regulatory restrictions. Despite the SNB clarifying that they still believed in the transformation project, shares plunged 24% to a record low.

On Wednesday evening, Credit Suisse announced that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank under a secured credit facility and a short-term liquidity facility.

The Swiss National Bank and the Swiss Financial Market Supervisory Authority said in a statement Wednesday that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”

The support from the central bank and reassurance about Credit Suisse’s financial position led to a 20% pop in the share price on Thursday, and may have reassured depositors for the time being.

However, analysts suggest there will remain questions about where the market will place the stock’s true value to shareholders in the absence of this buffer from the Swiss authorities.

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