Credit Suisse, the 167-year-old Swiss lender, has recently faced a severe crisis due to a combination of factors:
Scandals and Losses: The troubles began in 2021 with significant losses related to the collapse of the Archegos investment fund and Greensill Capital. These events shook investor confidence in the bank.
Management Changes: In January 2022, Chairman Antonio Horta-Osorio resigned after breaching COVID-19 rules, leaving the bank without a leader. This leadership vacuum added to the uncertainty.
Strategic Review: The new CEO, Ulrich Koerner, initiated a strategic review in July but failed to convince investors of the bank’s turnaround plan, leading to continued doubts about its future.
Customer Exodus: An unsubstantiated rumor of the bank’s impending failure in the autumn triggered a wave of customer withdrawals. Credit Suisse confirmed that clients had pulled 110 billion Swiss francs of funds in the fourth quarter.
Financial Losses: In the same period, Credit Suisse suffered its largest annual loss of 7.29 billion Swiss francs since the 2008 financial crisis. To shore up its finances, the bank had already tapped investors for 4 billion Swiss francs in December.
Saudi National Bank: Credit Suisse’s top backer, Saudi National Bank, stated that it couldn’t provide more financial support due to regulatory constraints, even though it expressed satisfaction with the bank’s turnaround plan.
As a result of these challenges, Credit Suisse’s shares have plummeted by 75% in the past year.
Potential Steps to Address the Crisis:
Borrowing Liquidity: Credit Suisse has announced plans to borrow up to $54 billion from the Swiss central bank to boost liquidity and reassure investors.
Strategic Investors: Attracting strategic investors, such as Qatar Investment Authority and Saudi conglomerate Oyalan Group, could help rebuild market confidence. However, such deals may come with complexities and uncertainties.
Asset Divestment: The bank might consider divesting stakes in various assets, including its asset management business and a stake in SIX Group, which operates the Zurich stock exchange.
Credit Suisse is vital in the global financial system as one of the 30 global systemically important banks. Its failure would have widespread repercussions throughout the financial industry. The bank’s operations encompass wealth management, investment banking, and asset management, making it a significant player in the financial world.