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  • by Smriti Mathur
  • Mar 23, 2023
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From Spying To Swiss Bailout: How Years Of Turbulence At Credit Suisse Came To A Head

 

  • According to Credit Suisse's 2021 Annual Report, the bank reported a net loss of CHF 353 million for the full year 2020, and a net profit of CHF 3.6 billion for the full year 2019.
  • In the second quarter of 2022, Credit Suisse reported a loss of CHF 1.593 billion.
  • Credit Suisse's assets under management (AUM) fell by CHF 110.5 billion in the fourth quarter of 2022, according to its 2022 annual report.
  • The Saudi National Bank took a 9.9% stake in Credit Suisse's capital raise, which raised $4.2 billion.
  • On March 16, 2023, Credit Suisse's share price closed at CHF 2.90.

 

Credit Suisse has long been a prominent player in the world of finance, but in recent years, the bank has faced a series of setbacks that have rocked its reputation and left it struggling to regain its footing. From a high-profile spying scandal to a major bailout by the Swiss government, Credit Suisse has been through a period of unprecedented turbulence that has tested its resilience and raised questions about its future direction.

 

In this press release, we will take a closer look at the key events and decisions that led to this critical juncture in Credit Suisse's history and explore the challenges and opportunities that lie ahead for this iconic financial institution.

 

Credit Suisse, one of the leading banks in Switzerland, has found itself in dire straits recently, and its financial position has been anything but stable. In a bid to salvage the situation, the Swiss National Bank has provided Credit Suisse with a liquidity lifeline, to the tune of 50 billion Swiss francs (approximately $54 billion), after the bank's share price plummeted to an all-time low.

 

This significant intervention by the Swiss National Bank is unprecedented since the Global Financial Crisis in 2008, making Credit Suisse the first major bank to receive such assistance. The move highlights the gravity of the situation facing Credit Suisse and underscores the severity of the financial challenges that the bank has been grappling with.

 

The bank's share price has been on a downward spiral, with consecutive sessions of steep drops in recent times. This has resulted in the bank's shares ending at a meager 1.697 Swiss francs as of Wednesday, representing a significant decrease of almost 98% from the stock's all-time high in April 2007. Additionally, credit default swaps, which are instruments that insure bondholders against a company defaulting, have risen to new record highs, further exacerbating the bank's already precarious financial situation.

 

The bank's troubles did not happen overnight. Credit Suisse has been grappling with underperformance in its investment banking division for years, and this has taken a significant toll on the bank's financial performance. The bank has also been embroiled in a litany of scandals, including high-profile cases of corruption and fraud, as well as risk management failures, all of which have impacted its reputation and eroded investor confidence.

 

Credit Suisse's path to the brink has been long and tumultuous, marked by significant underperformance in investment banking, a string of scandals, and risk management failures. The Swiss National Bank's recent intervention underscores the seriousness of the bank's financial troubles and the need for immediate action to restore stability and confidence in the institution.

 

  1. Scandals

Credit Suisse is currently undergoing a significant strategic overhaul to address the chronic issues plaguing the bank. The bank's current CEO, Ulrich Koerner, who is a Credit Suisse veteran, assumed the role in July, taking over from Thomas Gottstein. This change in leadership came at a time when the bank was struggling with poor investment bank performance and mounting litigation provisions, which were adversely affecting earnings.

 

Before Koerner's appointment, Thomas Gottstein had taken over as CEO in early 2020, following the resignation of his predecessor, Tidjane Thiam. Thiam's resignation was in response to a bizarre spying scandal that had rocked the bank, involving the alleged tailing of UBS-bound former wealth management boss, Iqbal Khan, by private contractors allegedly at the direction of former COO Pierre-Olivier Bouee. The scandal resulted in the suicide of a private investigator and the resignations of a slew of executives, further adding to the bank's troubles.

 

Under Koerner's leadership, Credit Suisse has initiated significant changes to address the bank's chronic issues. The overhaul includes a major restructuring plan, cost-cutting measures, and a renewed focus on core banking activities. These efforts are aimed at restoring investor confidence and improving the bank's overall financial performance.

 

Credit Suisse's struggles have prompted a significant strategic overhaul, with the bank's current CEO, Ulrich Koerner, leading the charge to turn things around. The bank's troubles have been exacerbated by a string of scandals, including the spying scandal that led to the resignation of former CEO Tidjane Thiam. The bank is now focused on implementing a major restructuring plan, cost-cutting measures, and improving core banking activities to restore investor confidence and improve its financial performance.

 

The former head of Credit Suisse's flagship domestic bank, Thomas Gottstein, was widely regarded as a steady hand who sought to put an end to the era of scandal that plagued the bank. Unfortunately, his mission was short-lived as he found himself dealing with the fallout from two huge crises in early 2021. These crises involved the bank's exposure to the collapses of U.S. family hedge fund Archegos Capital and British supply chain finance firm Greensill Capital, which resulted in massive litigation and reimbursement costs for the bank.

 

As a result of these oversight failures, Credit Suisse's investment banking, risk and compliance, and asset management divisions underwent a massive shakeup. In April 2021, the bank brought in former Lloyds Banking Group CEO Antonio Horta-Osorio to clean up the bank's culture and announced a new strategy in November of that year. However, Horta-Osorio was forced to resign in January 2022 after violating Covid-19 quarantine rules twice, and he was replaced by UBS executive Axel Lehmann.

 

In February 2022, the bank faced fresh scrutiny when leaked data purported to show that it had served human rights abusers, corrupt politicians, and sanctioned businessmen for decades. Legacy compliance issues also continued to emerge, such as Credit Suisse being found guilty in Switzerland's Federal Criminal Court in June 2022 of failing to prevent an alleged Bulgarian cocaine trafficking gang from laundering profits via the bank between 2004 and 2008.

 

With litigation provisions mounting and the bank's performance still trailing its peers, losses deepened in both the company's earnings and its share price. After a 1.593 billion Swiss franc loss in the second quarter of 2022 and two months after Lehmann staunchly denied talks of a change in leadership, Credit Suisse announced that Gottstein would be replaced with Koerner.

 

The bank embarked on another costly sweeping transformation project under Koerner and Lehmann's leadership, aimed at returning the embattled lender to long-term stability and profitability. This included the spin-off of Credit Suisse's investment banking division to form U.S.-based CS First Boston, a significant cut in exposure to risk-weighted assets, and a $4.2 billion capital raise that saw the Saudi National Bank take a 9.9% stake to become the largest shareholder.

 

  1. March Madness

In the wake of yet another challenging year, Credit Suisse released its full-year financial results for 2022, revealing a staggering net loss of 7.3 billion Swiss francs. The beleaguered bank also projected a substantial loss for 2023 before returning to profitability in 2024. The announcement of this dismal financial performance led to reports of liquidity concerns, prompting investors to withdraw their assets, with the fourth quarter seeing outflows of 110.5 billion Swiss francs.

 

The impact on the company's share price was severe, with a sharp fall after the annual results were released in early February, and the shares traded at a meager 2.85 Swiss francs per share in March 2023. However, the situation was about to become even worse.

 

On March 9, Credit Suisse was compelled to delay its 2022 annual report following a late call from the U.S. Securities and Exchange Commission concerning a technical assessment of previously disclosed revisions to the consolidated cash flow statements for 2019 and 2020. Eventually, the report was released the following Tuesday, and Credit Suisse acknowledged that material weaknesses had been found in its financial reporting processes for 2021 and 2022. However, the bank confirmed that its previously announced financial statements were still accurate.

 

Compounding the negative impact of these revelations, Credit Suisse's share price losses continued, as investors reacted to the confirmation that outflows had not reversed, exacerbating the bank's already precarious financial position. This latest setback came after the bank had already suffered the global risk-off jolt resulting from the collapse of Silicon Valley Bank.

 

Credit Suisse, the embattled Swiss banking giant, suffered yet another setback on Wednesday, March 15th, 2023. The Saudi National Bank, the bank's top investor, announced that it would not be able to provide any additional funding to Credit Suisse due to regulatory restrictions. Despite the Saudi National Bank clarifying that it still believed in the transformation project, Credit Suisse shares plummeted by a staggering 24%, hitting an all-time low.

 

To counter the liquidity crisis, 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 under a covered loan facility and a short-term liquidity facility. The Swiss National Bank and the Swiss Financial Market Supervisory Authority, in a joint statement, reiterated that Credit Suisse "meets the capital and liquidity requirements imposed on systemically important banks."

 

The central bank's support and reassurance on Credit Suisse's financial position were well-received by the market, leading to a 20% surge in the share price on Thursday, March 16th, 2023. While this may have temporarily assuaged concerns about the bank's stability, analysts suggest that questions remain regarding the market's valuation of the stock in the absence of a buffer from the Swiss authorities.

 

Credit Suisse's troubles have been ongoing for several years, with a series of scandals and crises causing massive losses and sparking investor unrest. The bank reported a full-year net loss of 7.3 billion Swiss francs for 2022 and predicted another "substantial" loss in 2023 before returning to profitability in 2024. Reports of liquidity concerns in late 2022 led to significant outflows of assets under management, which hit 110.5 billion Swiss francs in the fourth quarter. The delay of the 2022 annual report due to a "technical assessment" from the US Securities and Exchange Commission and the subsequent discovery of "material weaknesses" in Credit Suisse's financial reporting processes for 2021 and 2022 compounded the bank's share price losses.

 

Final Takeaways:

Credit Suisse's journey from being a leading bank in Switzerland to its recent dire straits has been a long and tumultuous one, marked by significant underperformance in its investment banking division, a string of scandals, and risk management failures. The Swiss National Bank's recent intervention of providing a liquidity lifeline to the tune of 50 billion Swiss francs has underscored the seriousness of the bank's financial troubles and the need for immediate action to restore stability and confidence in the institution.

 

The bank's share price has been on a downward spiral, with consecutive sessions of steep drops in recent times, resulting in the bank's shares ending at a meager 1.697 Swiss francs as of Wednesday. This represents a significant decrease of almost 98% from the stock's all-time high in April 2007. Additionally, credit default swaps, which are instruments that insure bondholders against a company defaulting, have risen to new record highs, further exacerbating the bank's already precarious financial situation.

 

The bank's troubles did not happen overnight. Credit Suisse has been grappling with underperformance in its investment banking division for years, and this has taken a significant toll on the bank's financial performance. The bank has also been embroiled in a litany of scandals, including high-profile cases of corruption and fraud, as well as risk management failures, all of which have impacted its reputation and eroded investor confidence.

 

One of the most significant scandals that have rocked the bank in recent years was the spying scandal that led to the resignation of former CEO Tidjane Thiam. The scandal involved the alleged tailing of UBS-bound former wealth management boss, Iqbal Khan, by private contractors allegedly at the direction of former COO Pierre-Olivier Bouee. The scandal resulted in the suicide of a private investigator and the resignations of a slew of executives, further adding to the bank's troubles.

 

Credit Suisse's current CEO, Ulrich Koerner, who is a Credit Suisse veteran, assumed the role in July 2022, taking over from Thomas Gottstein. This change in leadership came at a time when the bank was struggling with poor investment bank performance and mounting litigation provisions, which were adversely affecting earnings. Under Koerner's leadership, Credit Suisse has initiated significant changes to address the bank's chronic issues. The overhaul includes a major restructuring plan, cost-cutting measures, and a renewed focus on core banking activities. These efforts are aimed at restoring investor confidence and improving the bank's overall financial performance.

 

Credit Suisse's troubles have prompted a significant strategic overhaul, with the bank's current CEO, Ulrich Koerner, leading the charge to turn things around. The bank is now focused on implementing a major restructuring plan, cost-cutting measures, and improving core banking activities to restore investor confidence and improve its financial performance.

 

The Saudi National Bank has also taken a 9.9% stake in Credit Suisse's capital raise, which raised $4.2 billion, further illustrating the bank's efforts to secure funding and restore investor confidence. However, Credit Suisse's assets under management (AUM) fell by CHF 110.5 billion in the fourth quarter of 2022, according to its 2022 annual report, indicating that the road to recovery will be a long and challenging one.

 

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