How years of turbulence came to a head

Credit Suisse got a liquidity lifebuoy from the Swiss National Bank this week after its share price fell to an all-time low, but the embattled lender’s road to the brink has been long and tumultuous.

The announcement that Credit Suisse would borrow up to 50 billion Swiss francs ($54 billion) from the central bank came after consecutive sessions of sharp falls in the share price. This made Credit Suisse the first major bank to receive such an intervention since the 2008 global financial crisis.

Shares of the bank closed at 1,697 Swiss francs on Wednesday – almost 98% lower than the all-time high in April 2007, while credit default swaps, which insure bondholders against a company’s failure, rose to new all-time highs this week.

It comes after years of underperformance by investment banks and a litany of risk management scandals and failures.

scandals

Credit Suisse is currently undergoing a massive strategic overhaul to address these chronic issues. Current Credit Suisse CEO and veteran Ulrich Koerner took over from Thomas Gottstein in July, as the investment bank’s poor results and rising lawsuit fees continued to weigh on profits.

Gottstein took the reins in early 2020 following the resignation of predecessor Tidjane Thiam in the wake of a bizarre espionage scandal that saw UBS-bound former asset manager Iqbal Khan trailed by private contractors, reportedly at the behest of former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private investigator and the firing of a slew of executives.

The former head of Credit Suisse’s main domestic bank, widely seen as a steady hand, Gottstein sought to end an era plagued by scandal. That mission was short-lived.

At the beginning of 2021, he had to deal with the consequences of two major crises. The bank’s exposure to the collapse of US family hedge fund Archegos Capital and UK supply chain finance company Greensill Capital saddled it with massive litigation and reimbursement costs.

These oversight deficiencies resulted in a massive shake-up of Credit Suisse’s investment banking, risk and compliance, and asset management divisions.

In April 2021, Antonio Horta-Osorio, former CEO of Lloyds Banking Group, was brought in to clean up the bank’s culture following the series of scandals, announcing a new strategy in November.

But in January 2022, Horta-Osorio was forced to resign after being found to have broken Covid-19 quarantine rules twice. He was replaced by UBS executive Axel Lehmann.

The bank embarked on another costly and sweeping transformation project as Koerner and Lehmann set out to return the embattled 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 reduction in exposure to risk-weighted assets and a $4.2 billion capital raise, with the Saudi National Bank taking a stake. of 9.9% to become the largest shareholder.

March madness

Credit Suisse reported a full-year net loss of CHF 7.3 billion for 2022, forecasting another “significant” loss in 2023 before returning to profitability in 2024.

Reports of liquidity problems at the end of the year led to a massive outflow of assets under management, reaching CHF 110.5 billion in the fourth quarter.

After another sharp drop in share price due to full-year results in early February, Credit Suisse shares traded at a paltry 2.85 Swiss francs per share in March 2023, but things were set to get worse.

On March 9, the company was forced to postpone its 2022 annual report following a belated call from the U.S. Securities and Exchange Commission regarding a “technical review of previously disclosed revisions to its consolidated cash flow statements” in 2019 and 2020.

The report was finally published the following Tuesday and Credit Suisse noted that “material deficiencies” had been found in its financial reporting processes for 2021 and 2022, though it confirmed that the previously announced financial statements were still accurate.

Credit Suisse had already experienced the global risk-off shock following the collapse of US-based Silicon Valley Bank, and the combination of these comments and confirmation that outflows had not been reversed exacerbated stock losses. Credit Suisse.

And it went into freefall on Wednesday, when top investor Saudi National Bank said it was unable to provide any more cash to Credit Suisse due to regulatory restrictions. Despite the SNB clarifying that it still believed in the transformation project, shares fell 24% to an all-time low.

On Wednesday evening, Credit Suisse announced it would exercise its option to borrow up to CHF 50 billion 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 regulator said in a statement Wednesday that Credit Suisse “complies with the capital and liquidity requirements imposed on systemically important banks.”

Central bank support and reassurance about Credit Suisse’s financial position led to a 20% rise in its share price on Thursday and may have reassured savers for now.

However, analysts suggest that questions will remain about where the market will place the true value of the share for shareholders if this cushion from Swiss authorities is missing.