The Swiss bank Credit Suisse logo is seen at an office building in Zurich, Switzerland, February 21, 2022.
Arnd Wiegmann Reuters
Swiss credit received a liquidity lifeline from the Swiss National Bank this week after its share price fell to an all-time low, but the embattled lender’s road to the abyss has been long and turbulent.
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. Credit Suisse was the first major bank to receive such an intervention since the 2008 global financial crisis.
The bank’s shares closed at 1,697 Swiss francs on Wednesday — nearly 98% below the stock’s all-time high in April 2007, while credit default swaps, which insure bondholders against a company’s default, soared to new record highs this week.
It comes after years of investment banking underperformance and a litany of scandals and risk management failures.
scandals
Credit Suisse is currently undergoing a massive strategic overhaul to address these chronic issues. Current CEO and veteran of Credit Suisse, Ulrich Koerner, took over from Thomas Gottstein in July as the investment bank’s weak performance and rising litigation provisions further weighed on earnings.
Gottstein took over the reins in early 2020 following the resignation of predecessor Tidjane Thiam amid a bizarre espionage scandal that has seen UBS-linked former wealth manager Iqbal Khan being shadowed by private contractors, allegedly on orders from former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private investigator and the resignations of a number of executives.
Gottstein, the former head of the domestic flagship bank Credit Suisse, who is widely regarded as a steady hand, was trying to end a scandal-plagued era. This mission was short-lived.
At the beginning of 2021 he had to deal with the consequences of two major crises. The bank’s burden from the collapse of US family hedge fund Archegos Capital and UK supply chain financier Greensill Capital has resulted in massive litigation and recovery costs.
These supervisory errors led to massive restructuring in the areas of investment banking, risk and compliance and asset management at Credit Suisse.
In April 2021, former Lloyd’s Banking Group Called in to clean up the bank’s culture after a series of scandals, CEO Antonio Horta-Osorio announced a new strategy in November.
But in January 2022, Horta-Osorio was forced to resign after he was found to have broken Covid-19 quarantine rules twice. He was replaced by UBS CEO Axel Lehmann.
The bank embarked on another costly sweeping transformation project as Koerner and Lehmann set about restoring the ailing lender to long-term stability and profitability.
These included the spin-off of Credit Suisse’s investment banking arm into US-based CS First Boston, a significant reduction in exposure to risk-weighted assets, and a $4.2 billion capital raise in which the Bank of Saudi Arabia received a stake from 9.9% took over to 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 forecasts another “significant” loss in 2023 before returning to profitability in 2024.
Reports of liquidity problems towards the end of the year led to huge outflows from invested assets, which reached 110.5 billion Swiss francs in the fourth quarter.
After another sharp fall on the back of full-year results in early February, Credit Suisse shares started trading in March 2023 at a meager price of CHF 2.85 per share, but things were about to get worse.
On March 9, the company was forced to delay its 2022 annual report after the U.S. Securities and Exchange Commission delayed invoking a “technical review of previously disclosed revisions to the consolidated statement of cash flows” in 2019 and 2020.
The report was finally released the following Tuesday, and Credit Suisse noted that “material weaknesses” had been identified in its 2021 and 2022 financial reporting processes, although it confirmed that its previously announced financial statements were still accurate.
The combination of these comments and confirmation that outflows had not reversed, having already suffered the global risk-aversion shock that followed the collapse of the US Silicon Valley bank, compounded Credit Suisse’s losses.
And things went into free fall on Wednesday when the top investor, the National Bank of Saudi Arabia, said it could no longer provide cash to Credit Suisse due to regulatory restrictions. Despite the SNB making it clear that it still believes in the transformation 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 secured credit facility and a short-term liquidity facility.
The Swiss National Bank and the Swiss Financial Market Supervisory Authority announced on Wednesday that Credit Suisse “meets the capital and liquidity requirements for systemically important banks”.
Central bank support and financial reassurance at Credit Suisse pushed the share price up 20% on Thursday and may have reassured investors for now.
However, analysts believe that in the absence of that buffer from Swiss authorities, the question will remain as to where the market will value the stock’s true value for shareholders.
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2023-03-17 07:16:17
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