All about the collapse of 167-year old Credit Suisse

Looking at the recent events in the banking sector, The Silicon Valley Bank collapse, and Signature Bank and First Republic Bank being saved from collapse by the Federal Reserve, Treasury, and FDIC. The parent company of Silicon Valley Bank filing for bankruptcy protection, and people wondering what the implications of these events will be for the U.S. banking system and inflation….

The main focus here is on Credit Suisse, an international investment bank based in Switzerland. Credit Suisse has been identified as a global systemically important bank in the past, meaning that its collapse could have significant implications for the global financial system.

Recently, UBS and other Swiss banks bought Credit Suisse, which is considered one of the better outcomes that could have happened given the company’s sketchy actions over the past few months and years.

Credit Suisse was sold to UBS in a distress sale. The deal was brokered by the Swiss government and regulators to contain the crisis of confidence in Credit Suisse which faced withdrawals of close to $10 billion last week. UBS paid around $3.2 billion to Credit Suisse. This is a spectacular collapse for the 166-year old bank.

Credit Suisse has had questionable ethics and profits, and its reputation as a financial institution has sunk to some of the lowest lows. The bank had a full-year loss of 7.3 billion Swiss Francs, and the company reported significant withdrawals from their institution in the fourth quarter of the year. Reports came out that the bank was offering a 6.5% annualized rate of return on a three-month term deposit in a desperate attempt to draw customers back into the bank.

After a note from the SEC, Credit Suisse delayed its annual report filing, and material weaknesses were found in its 2021 and 2022 financial reporting. The markets did not believe the company’s claims that its financial statements were still accurate, and the stock traded down 24% to an all-time low. Saudi National Bank, the largest shareholder in the institution, announced that they would not provide any further financial support for the bank because of regulatory restrictions.

Credit Suisse announced that it would be borrowing 50 billion Swiss Francs, or roughly 9.4% of its asset balance, from the Swiss National Bank under a covered loan facility and a short-term liquidity facility, both of which would be using the company’s assets as collateral. This announcement helped the stock a little, but by the end of the week, the company was still trading at a market cap of around 7 billion Swiss Francs, which is significantly lower than its market cap just a few months ago.

The bank has been previously involved in multiple scandals that have rattled investors in recent years. As per Forbes, the bank was convicted in June 2022 of failing to prevent money laundering by a Bulgarian cocaine trafficking gang. The bank was fined by the Swiss government and ordered to pay $20 million as punishment. In another case in 2022, the Bermuda court ruled the former bank owed Georgian Prime Minister Bidzina Ivanishvili and his family around $500 million in damages from Credit Suisse’s local life insurance company. As per a Forbes report, Credit Suisse’s chief executive Tidjane Thiam in 2020 was forced to resign after it was unveiled that the bank hired private detectives to spy on its former head of wealth management once he left to join a rival bank.

Credit Suisse’s meltdown also erased billions of dollars in investments made by Qatar’s sovereign fund and the Saudi-based Olayan family, making the Persian Gulf one of the biggest losers from a slide in financial stocks since the collapse of two U.S. banks last week.

The Saudi investment in Credit Suisse was meant to be the kingdom’s splashy entrance into the global banking sector, cementing its emerging status as an oil-fuelled investing powerhouse. The Saudis struck the deal when oil prices were just below $100 a barrel, as Russia’s invasion of Ukraine juiced energy markets.