We need only look as far back as 2021. In March the bank was involved in the collapse of Greensill Capital, and then the downfall of Archegos Capital just days after – both of which cost it billions in losses.
Then in October of that year, the bank was fined $350m and pled guilty to wire fraud after it was found to have issued unaccounted loans to Mozambique in what became known as the “tuna bonds” scandal.
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In June 2022 the bank was found guilty of and fined for its involvement in money laundering relating to a Bulgarian drugs ring – though it’s currently appealing against the ruling and denies wrongdoing.
Ulrich Körner, who joined Credit Suisse as CEO in early 2021, published his turnaround strategy last October as he tried to draw a line under the Swiss bank’s chequered past.
However, the group hardly had time to begin the process before the global banking sector was hit by a crisis of confidence following the collapse of Silicon Valley Bank (SVB).
We look at what happened at Credit Suisse, and what it means for investors.
What happened to Credit Suisse?
Last month Credit Suisse confirmed clients had pulled billions in funds in the fourth quarter, which when combined with legal and restructuring costs, lead to its biggest annual loss since the financial crisis. The lender revealed a 7.3bn Swiss francs (£6.6bn) net loss for 2022, wiping out a decade of profits.
As concerns for its health grew, last week the Saudi National Bank, the bank’s top backer, said it could not give more money to Credit Suisse due to regulatory constraints.
This spooked investors, who were already on edge following the collapse of SVB days before.
Severe outflows followed, which prompted the Swiss National Bank (SNB) to offer a $54bn credit line.
But that didn’t calm markets. “On Friday the liquidity outflows and market volatility showed it was no longer possible to restore market confidence, and a swift and stabilising solution was absolutely necessary,” Swiss president Alain Berset said at a press conference in Bern on Sunday evening.
Regulators spent the past weekend negotiating a takeover by UBS, Switzerland’s largest bank. UBS agreed to buy Credit Suisse for £2.65bn.
What does the merger mean for investors?
UBS acquired Credit Suisse at £2.65bn on Sunday afternoon – significantly below its closing value on Friday, which was around £7bn.
Swiss regulators brokered the deal and will allow it to go ahead without a shareholder vote.
“In terms of the private wealth management space [the deal] creates a superpower that could dominate the industry,” says Andrew Haslip, analyst at GlobalData. “The combination of Switzerland’s two leading banks creates a combined private bank with almost $4 trillion in client AUM as of the end of 2022.”
“While on paper this move looks like a fairly neat solution with minimal government intervention, it is likely to cause significant competitive issues,” continues Haslip. “The forced merger solves the immediate crisis at Credit Suisse. However, there will be a cost in terms of competition in the private wealth management space – especially in Switzerland.”
The operation is “a big risk for UBS”, says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“It will not only have to accept the healthier parts of the business but its failing ones as well – particularly its investment division, which has been mired in crisis after crisis,” says Streeter “UBS will now be looking to chop up and sell off big chunks of operations, to slim down in size, given that the combined balance sheet is twice the size of Switzerland’s economy.”
Credit Suisse’s clients are mostly wealthy clients and businesses, not everyday savers. But the repercussions of its collapse have rocked markets, raising further concerns about the state of the banking sector. There’s also a risk of potential spillover effects as the bank’s investors deal with large losses.
Holders of risky Credit Suisse debt saw their investment wiped out after the government wrote down the value of these bonds to zero, resulting in a £14bn loss.
Investors are allegedly considering legal action over the takeover.
Is this a repeat of the 2008 financial crisis?
The UK government said the UK banking system remains “safe and well-capitalised” following the deal.
Indeed, bigger banks are in a far better position than they were in 2008. “They have built up much bigger capital cushions since the financial crisis, have more stable deposits, and some are seeing greater inflows of cash as companies and individuals seek out safer havens to put their money,” says Streeter.
”They are also much less likely to have to sell off bonds, they may have a paper loss on right now, but instead will be able to hang onto them until they mature.”
“In theory, there is no reason for the Credit Suisse crisis to extend,” adds Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “As what triggered the last quake for Credit Suisse was a confidence crisis – which doesn’t concern UBS – a bank outside of the turmoil, with, in addition, ample liquidity and guarantee from the SNB and the government.”
Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.
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