How years of turmoil came to a head

  • Credit Suisse is currently undergoing a massive strategic review to deal with chronic problems.
  • Shares have been in persistent decline since the crisis, amid underperformance in investment banking and a litany of scandals and failures in risk management.
  • On Wednesday evening, Credit Suisse announced 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 share was down nearly 98% from its April 2007 all-time high.

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 fell to a record low, but the embattled lender’s road to the cap 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 its 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 their all-time high in April 2007, while credit default swaps, which insure bondholders against default a company, soared to new all-time highs this week.

It comes after years of poor investment banking performance and a litany of scandals and failures in risk management.

scandals

Credit Suisse is currently undergoing a massive strategic review to try to address these chronic issues. Credit Suisse veteran and current CEO Ulrich Koerner took over from Thomas Gottstein in July as poor investment banking performance and rising litigation provisions continued to weigh on earnings.

Gottstein took the reins in early 2020 after predecessor Tidjane Thiam resigned in the wake of a bizarre spying scandal, in which former UBS-linked head of wealth management Iqbal Khan was followed by private contractors allegedly under the direction of former COO Pierre-Olivier Bouee. . The saga also saw the suicide of a private investigator and the resignations of a large number of executives.

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

At the beginning of 2021, it found itself facing the consequences of two major crises. The bank’s exposure to the collapses of US family hedge fund Archegos Capital and British supply chain finance firm Greensill Capital has saddled it with massive litigation and repayment costs.

These oversight failures resulted in a massive transformation of Credit Suisse’s investment banking, risk and compliance and asset management divisions.

In April 2021, former chief executive 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 he was found to have breached Covid-19 quarantine rules twice. He was replaced by UBS executive Axel Lehmann.

The bank began 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 US-based CS First Boston, a significant reduction in exposure to risk-weighted assets and a capital increase of €4.2 billion dollars, which made the Saudi National Bank take a 9.9% stake and become the largest shareholder.

march madness

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

Reports of liquidity concerns at the end of the year led to large outflows of assets under management, which reached 110.5 billion Swiss francs in the fourth quarter.

After another sharp fall in its share price following its annual results in early February, Credit Suisse shares entered March 2023 trading at a paltry 2.85 Swiss francs per share, 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 related to a “technical assessment of previously disclosed revisions to the cash flow statements “consolidated cash” in 2019 and 2020.

Finally, the report was published the following Tuesday and Credit Suisse noted that “significant weaknesses” were found in its financial reporting processes for 2021 and 2022, although it confirmed that its announced financial statements previously they were still accurate.

Having suffered the global de-risking shock from the collapse of US-based Silicon Valley Bank, the combination of these observations and confirmation that outflows had not reversed increased losses in the price of Credit Suisse shares.

And on Wednesday, it went into freefall as major investor Saudi National Bank said it could not provide more cash to Credit Suisse due to regulatory restrictions. Despite the SNB clarifying that it still believed in the turnaround project, shares fell 24% to an all-time 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 covered credit facility and a short-term liquidity facility.

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

Support from the central bank and reassurance about Credit Suisse’s financial position led to a 20% rise in the share price on Thursday, and may have reassured depositors for now.

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

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