Switzerland’s 2nd largest bank, Credit Suisse, was bought out by its competitor UBS for £2.5billion. Being one of Europe’s top 25 banks, it’s usually unforeseeable that a bank this large could fall. However, Credit Suisse has been on a decline for quite some time.
How did Credit Suisse’s problems begin?
In 2014, Credit Suisse pleaded guilty to charges that it had allowed some of its US clients to evade their taxes. The bank ended up paying over $2.6billion as part of the settlement[i].
In 2020, the CEO of Credit Suisse, Tidjane Thiam, resigned after 2 high-profile spying scandals, where the company was allegedly spying on executives which had left to join UBS.
Up until 2021, Credit Suisse was entangled with Greensill Capital, a financial company which provided supply chain financing. On 8th March 2021, Greensill filed for insolvency protection[ii], and cost Credit Suisse CHF[iii]1.6billion.
Credit Suisse was also heavily invested in a private hedge fund called Archegos Capital. In the same year as the Greensill collapse, Archegos also folded. This left Credit Suisse with just over CHF5billion in additional losses.
However, Credit Suisse’s problems were only just beginning.
What other problems affected Credit Suisse?
Between 2012 and 2016, Credit Suisse had given Mozambique over £940million worth of loans towards government-sponsored investment schemes. However, a part of these funds was unaccounted for, with one of Mozambique’s Government officials found to be arranging ‘kickbacks’ worth $137million, including $50m for bankers at Credit Suisse. This corruption ended up in the firm paying out $475million to settle the case.
To make matters worse, in 2022, allegations came out over a money laundering operation involving Credit Suisse in Bulgaria. It came after the actions of an employee who worked at the bank helped a Bulgarian wrestler launder money through Credit Suisse. Credit Suisse was fined £15million by the Swiss Government and its already severely damaged reputation was hit further.
The bank also suffered from poor corporate governance[iv]. Over the past decade, the bank has been mismanaged and undergone numerous changes in leadership, none of which have proved effective in the slightest.
How did recent events cause Credit Suisse’s collapse?
After the collapse of the tech startup lender SVB, confidence in financial markets fell to a low not seen since 2008.
Soon after this news, the Saudi National Bank (SNB), one of the largest stakeholders in Credit Suisse, announced that it could not provide fresh funding because of a regulatory cap.
As confidence fell as investors questioned the liquidity levels[v] of the bank, depositors started to withdraw their deposits, leading to the beginning of the end for Credit Suisse.
What did the Swiss National Bank do?
As deposits were being withdrawn at such a fast rate, the Swiss National Bank offered Credit Suisse a $54billion credit line.
However, this only sent the markets into further panic, and market volatility[vi] only got progressively worse.
Between 18th to the 19th of March, regulators spent time discussing a merger deal between UBS and Credit Suisse in order to find a ‘swift and stable’ solution for the Swiss financial sector.
On Sunday 19th March in an eleventh-hour deal, UBS agreed to purchase Credit Suisse at £2.65billion, significantly below where its closing value on Friday was (£7billion).
One hopes that under the management of UBS, Credit Suisse will finally be free of regular scandals.
Footnotes:
[i] Settlement - an agreement reached (typically financial) to resolve a legal dispute.
[ii] Insolvency protection - protection against the bank not being solvent enough to repay its depositors.
[iii] CHF - currency symbol standing for the Swiss Franc.
[iv] Poor corporate governance - where a company’s board is ineffective at resolving the company’s problems.
[v] Liquidity levels - ability of a bank to meet its financial obligations.
[vi] Market volatility - frequency and magnitude of price movements.
Bibliography:
Credit Suisse fined £350m over Mozambique ‘tuna bonds’ loan scandal
Credit Suisse bank found guilty over money-laundering charges - BBC News
Credit Suisse bank: UBS is in talks to take over its troubled rival - BBC News
Credit Suisse: Why it's struggling and why that's a big deal | CNN Business
