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By Maulika Desai (Columnist)
Credit Suisse is a renowned investment bank with a global presence spanning over 50 countries. It provides a plethora of banking services to high-net-worth individuals and institutional clients. The Zurich-based private bank traces its inception to 1856 when it was founded to finance the expansion of Swiss railroads. Until quite recently, it stood as Switzerland’s second-largest bank by assets. However, Credit Suisse’s 166-year-old legacy came to an abrupt end when its long-time adversary, the UBS Group announced its acquisition, making it one of the most significant deals in the global banking industry.
Credit Suisse has endured several pain pangs over the past few years. Things began to go south in 2019 when the then-CEO Tidjane Thiam was investigated by the bank’s board over allegations of spying on employees. Though he was not directly involved in this scandal, he had to resign in 2020 due to lapses in his governance. The bank reported a shocking second-quarter loss of $1.66 billion and soon after, Ulrich Koerner took over as CEO.
The banking mammoth suffered a whooping loss of $10 billion in 2021 owing to its heavy investment in Greensill Capital, a British financial firm specializing in short-term corporate loans. After Greensill's collapse, Swiss regulator FINMA ordered Credit Suisse to introduce more stringent reporting. Furthermore, the multinational bank lost another $5.5 billion just three weeks later when Archegos Capital Management defaulted. The hedge fund's over-leveraged bets on technology stocks failed, making its portfolio with Credit Suisse plummet.
Former Lloyds Banking Group CEO Antonio Horta-Osorio was appointed as Credit Suisse's new Chairman in May 2021. However, he was removed in nine months for breaching Covid-19 quarantine rules. In October of the same year, the bank had to pay $475 million after being embroiled in a corruption scandal in Mozambique.
In March 2022, a judge in Bermuda concluded that Credit Suisse's life insurance subsidiary had failed to meet obligations, so it had to pay the former Georgian Prime Minister Bidzina Ivanishvili $553 million in damages. In June of the same year, Switzerland’s Federal Criminal Court charged Credit Suisse another $2.1 million for failing to prevent money laundering by a Bulgarian cocaine-trafficking ring.
The leadership at Credit Suisse decided to cut 9,000 jobs and managed to raise $4 billion in fresh capital. During this fundraising, Saudi National Bank bought a 9.9% stake in October 2022 and became its largest shareholder. However, Credit Suisse reported the most significant annual loss in its results in early 2023, and its shares plummeted by 15%.
On 9 March 2023, the bank had to delay its annual report after receiving a call from the U.S. SEC regarding revisions to its cash flow statements. The very next day, the dramatic collapse of Silicon Valley Bank aggravated problems for Credit Suisse, with its shares falling by over 30%. On March 14, its balance sheet revealed material weakness during an internal audit. When Saudi National Bank was asked if it would assist Credit Suisse, the Chairman strongly denied it. This amplified investor concerns, leading to a further drop of 24% in share price. Prices of Credit Suisse’s bonds also fell to distressed levels.
On March 15, Credit Suisse declared it would borrow $54 billion from the Swiss National Bank. This news came as a lifesaver and caused share prices to rise by 20% the very next day. When investor confidence faltered once again, FINMA feared that the bank would become insolvent if not dealt with so it asked the Union Bank of Switzerland (UBS) to acquire it. On March 19, a reluctant UBS agreed to settle the buyout at $3.3 billion to ease liquidity and boost investor confidence.
Usually, bondholders are given priority over shareholders in the creditor pecking order when a bank goes bust. However, FINMA stated that the acquisition would result in a total loss of value for all of Credit Suisse’s AT1 (Additional Tier 1) bonds, which were worth $17 billion. This question of hierarchy has caused distress among bond investors of other banks.
Being battered by constant scandals, top management changes, liquidity crunches and multi-billion dollar losses has made Credit Suisse reach this impasse. As the founder Alfred Escher once said, "Credit Suisse will always be a Swiss bank with a global reach"- its demise has undoubtedly caught global financial systems off guard.
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