- Credit Suisse is currently undergoing a massive strategic overhaul to address chronic issues.
- The stock has been in continuous decline since the crisis, on the background of the poor performance of investment banking and the failure of scandals and risk management.
- Credit Suisse announced on Wednesday evening that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank.
- Wednesday’s closing price of 1.697 Swiss francs per share was down nearly 98% from the stock’s all-time high in April 2007.
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 hit an all-time low, but the embattled lender’s road to the brink has been long and stormy.
The announcement that Credit Suisse would borrow up to 50 billion Swiss francs ($54 billion) from the central bank comes after its share price has fallen sharply. It made Credit Suisse 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, down nearly 98% from the stock’s all-time high in April 2007, while credit default swaps, which guarantee bondholders default, hit new record highs this week.
It comes after years of investment banking underperformance and scandals and failure to manage risk.
Scandals
Credit Suisse is currently undergoing a massive strategic overhaul to address these chronic issues. Current CEO and Credit Suisse veteran Ulrich Koerner took over from Thomas Gottstein in July, when the poor performance of the investment banks and growing legal provisions further weakened the result.
Gottstein took the reins in early 2020 after his predecessor Tidjane Thiam resigned in the wake of a bizarre espionage scandal in which UBS-bound ex-wealth management boss Iqbal Khan was hounded by private contractors, allegedly led by former chief operating officer Pierre-Olivier Bouee. . The saga also saw the suicide of a private investigator and the resignation of several executives.
A former head of Credit Suisse’s domestic flagship bank and widely regarded as a steady hand, Gottstein sought to put to rest a scandal-plagued era. That assignment was short-lived.
At the beginning of 2021, he had to deal with the consequences of two huge crises. The bank’s exposure to the collapse of US family hedge fund Archegos Capital and UK supply chain finance firm Greensill Capital left it with huge legal and compensation costs.
These oversight failures led to a massive overhaul of Credit Suisse’s investment banking, risk and compliance and wealth management departments.
In April 2021, former Lloyds Banking Group chief executive Antonio Horta-Osorio was brought in to clean up the bank’s culture after the scandals, and he 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 director Axel Lehmann.
The bank embarked on another expensive transformation project when Koerner and Lehmann decided to restore 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 cut in risk-weighted assets and a $4.2 billion capital increase that saw Saudi Arabia’s central bank buy a 9.9 percent stake. becomes the largest shareholder.
March Madness
Credit Suisse reported a full-year net loss of 7.3 billion Swiss francs in 2022, forecasting 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 of assets under management, which reached 110.5 billion Swiss francs in the last quarter.
After another sharp drop in the share price due to the annual results in early February, Credit Suisse’s shares entered trading in March 2023 at a paltry 2.85 Swiss francs per share, but the situation was getting worse.
On March 9, the company was forced to delay its 2022 annual report following a late request from the US Securities and Exchange Commission for a “technical assessment of previously disclosed revisions to the consolidated cash flow statements” for 2019 and 2020.
The report was finally released the following Tuesday, with Credit Suisse stating that “material weaknesses” were found in its financial reporting processes for 2021 and 2022, although it confirmed that its previously released financial statements were still accurate.
As the collapse of US Silicon Valley Bank was driven by global risks, the combination of these remarks and confirmation that outflows had not reversed exacerbated losses in Credit Suisse’s share price.
And on Wednesday, it went into freefall after top investor Saudi Arabia’s central bank said it was unable to provide more cash to Credit Suisse due to regulatory restrictions. Although the SNB clarified that it still believes in the transformation project, the shares plunged 24% to an all-time low.
On Wednesday evening, Credit Suisse announced it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank under a secured loan 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 for systemically important banks”.
The central bank’s support and reassurance about Credit Suisse’s financial position sent the stock up 20 percent on Thursday and may have calmed depositors for the time being.
However, analysts suggest the question remains as to where the market places the stock’s true value to shareholders if the Swiss authorities lack this buffer.