- Credit Suisse is currently undergoing a massive strategic overhaul in an effort to address chronic issues.
- The stock has been in persistent decline since the crisis, amid underperformance by investment banks and a litany of scandals and failures in risk management.
- On Wednesday evening, Credit Suisse announced that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank.
- Wednesday’s close at 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 at an office building in Zurich, Switzerland, February 21, 2022.
Arnd Wiegman Reuters
Credit Suisse received a cash lifeline from the Swiss National Bank this week after its share price plunged to an all-time low, but the embattled lender’s road to the edge 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 declines in its share price. This made Credit Suisse the first major bank to receive such intervention since the 2008 global financial crisis.
The bank’s shares closed on Wednesday at 1.697 Swiss francs – down nearly 98% from the stock’s all-time high in April 2007, while credit default swaps, which insure bondholders against default of a company, reached new records this week.
It comes after years of investment banking underperformance and a litany of risk management scandals and failures.
Credit Suisse is currently undergoing a massive strategic overhaul in an effort to address these chronic issues. Current CEO and Credit Suisse veteran Ulrich Koerner took over from Thomas Gottstein in July as poor performance by investment banks and rising litigation provisions continued to weigh on earnings.
Gottstein took the reins in early 2020 following the resignation of his predecessor Tidjane Thiam following a bizarre spy scandal, in which former UBS-linked wealth management boss Iqbal Khan, was attended by private contractors allegedly under former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private detective and the resignation of a large number of executives.
A former head of flagship national bank Credit Suisse widely seen as a steady hand, Gottstein has sought to end a scandal-ridden era. This mission was short-lived.
At the start of 2021, it found itself grappling with the fallout of two huge crises. The bank’s exposure to the collapses of US family-owned hedge fund Archegos Capital and UK supply chain finance firm Greensill Capital has burdened it with massive legal and reimbursement costs.
These oversight failures led to a massive shake-up of Credit Suisse’s Investment Banking, Risk and Compliance, and Asset Management divisions.
In April 2021, former Lloyds Banking Group CEO Antonio Horta-Osorio was brought in to clean up the bank’s culture after the spate of scandals, announcing a new strategy in November.
But in January 2022 Horta-Osorio was forced to resign after being found guilty of twice breaking Covid-19 quarantine rules. He was replaced by Axel Lehmann, a UBS executive.
The bank embarked on another drastic and costly transformation project as Koerner and Lehmann set out to return the struggling 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. , which saw the Saudi National Bank take a 9.9% stake to become the largest shareholder.
Credit Suisse announced a net loss of 7.3 billion Swiss francs for the year 2022, predicting another “substantial” loss in 2023 before returning to profitability in 2024.
Reports of liquidity problems at the end of the year led to huge outflows from assets under management, which reached 110.5 billion Swiss francs in the fourth quarter.
After another sharp drop in share price following its annual results in early February, shares of Credit Suisse entered March 2023 at a paltry price of 2.85 Swiss francs per share, but things were on the up. not to get any worse.
On March 9, the company was forced to postpone its 2022 annual report after a late call from the U.S. Securities and Exchange Commission regarding a “technical assessment of previously disclosed revisions to consolidated cash flow statements” in 2019 and 2020. .
The report was finally published the following Tuesday, and Credit Suisse noted that “significant weaknesses” had been discovered in its financial reporting processes for 2021 and 2022, although it confirmed that its previously announced financial statements were still exact.
Having already suffered the global jolt of risk aversion resulting from the collapse of the US-based Silicon Valley Bank, the combination of these remarks and the confirmation that the outflows of funds had not reversed compounded the losses. share price of Credit Suisse.
And on Wednesday it fell into a tailspin as the main investor, the Saudi National Bank, said it was no longer able to provide more liquidity to Credit Suisse due to regulatory restrictions. Although the SNB has made it clear that it still believes in the transformation project, shares plunged 24% to an all-time low.
On Wednesday evening, Credit Suisse announced 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. term.
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.”
Central bank support and reassurance on Credit Suisse’s financial condition drove the stock price up 20% on Thursday, and may have reassured depositors for now.
However, analysts suggest that questions will remain about where the market will place the share’s true value for shareholders in the absence of this buffer from the Swiss authorities.