For the second time in a week, there is widespread panic among global banking stocks. The recent collapse of Silicon Valley Bank (SVB) in California has caused a wave of fear, and now there are fresh concerns over the stability of Credit Suisse, a major European bank. On Wednesday 15th March 2023, the shares of the Swiss lender dropped over 30%, reaching a historic low of approximately 1.56 Swiss francs (£1.40) per share. This was due to its top shareholder, the Saudi National Bank (SNB), announcing that it would not provide fresh funding, as regulations limit its stake to 10%, which it has already reached with its current 9.9% stake. Nonetheless, Credit Suisse's issues are unique and not recent, with various significant financial losses and scandals that have alarmed investors and led to a recent departure of clients.
Credit Suisse combined with First Boston during the 1980s and 1990s to establish its investment banking unit, known as Credit Suisse First Boston until 2006. As of the conclusion of 2021, Credit Suisse had a total of more than 50,000 staff and assets exceeding 1.6 trillion Swiss francs. The corporation has multiple operations, including domestic Swiss banking, asset management, wealth management, and investment banking.
The bank is in the process of a major restructuring plan, meant to stem major losses, which ballooned to 7.3bn Swiss francs (£6.6bn) in 2022, and revive operations hampered by multiple scandals over the past decade involving alleged misconduct, sanctions busting, money laundering and tax evasion. Here are some of the notable events:
Archegos Capital Management Scandal: In March 2021, Credit Suisse faced significant losses due to the collapse of Archegos Capital Management, a family office run by Bill Hwang. Credit Suisse was one of several banks that had lent money to Archegos to invest in the stock market, and when the value of Archegos' holdings declined sharply, Credit Suisse and other banks suffered large losses. Credit Suisse announced that it could face losses of up to $4.7 billion due to the scandal.
Greensill Capital Scandal: Credit Suisse was also involved in the collapse of Greensill Capital, a supply-chain finance company that filed for insolvency in March 2021. Credit Suisse had provided financing to Greensill, and when the company collapsed, Credit Suisse's clients who had invested in Greensill funds faced significant losses. Credit Suisse has since faced lawsuits and regulatory scrutiny over its involvement with Greensill.
Management Changes: In the wake of these scandals, Credit Suisse has undergone significant management changes. In April 2021, the bank announced that its CEO, Thomas Gottstein, would take over as chairman of the board, and that he would be replaced as CEO by Christian Meissner, a former investment banker at Bank of America. The bank has also made other changes to its senior leadership team in an effort to restore investor confidence.
Credit Suisse Group, which has been plagued by a series of scandals, suffered its largest annual loss since the 2008 global financial crisis, according to its announcement in February 2023. This was due to clients withdrawing billions from the bank, which caused a further "substantial" loss expected to occur this year. The bank experienced a surge in withdrawals in the fourth quarter, with outflows of over 110 billion Swiss francs ($120 billion), though it stated that the situation has been improving. In the fourth quarter alone, the bank reported a net loss of 1.39 billion francs, bringing its total net loss for 2022 to 7.29 billion francs, which marks the second consecutive year of being in the red.
The challenges faced by Credit Suisse are not sudden but rather an accumulation of years of difficulties. At this point, all we can do is hope for the best.
References: https://www.livemint.com/news/world/what-has-gone-wrong-at-credit-suisse-explained-11678809631102.html
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