How years of turbulence came to a head

Credit Suisse received a liquidity lifeline from the Swiss National Bank this week after its share price plunged to a record low, but the struggling lender’s road to the brink has been long and turbulent.

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. It made Credit Suisse the first major bank to receive such an intervention since the 2008 global financial crisis.

The bank’s shares ended Wednesday at 1.697 Swiss francs – down almost 98% from the stock’s record high in April 2007, while credit default swaps, which insure bondholders against a company defaulting, rose to new record highs this week.

It comes after years of underperformance in investment banking and a litany of scandals and risk management failures.

Scandals

Credit Suisse is currently undergoing a massive strategic overhaul in an effort to address these chronic problems. Current CEO and Credit Suisse veteran Ulrich Koerner took over from Thomas Gottstein in July, as poor investment banking results and mounting litigation continued to hammer earnings.

Gottstein took the reins in early 2020 after predecessor Tidjane Thiam resigned in the wake of a bizarre spying scandal, in which UBS-linked former wealth management chief Iqbal Khan was pursued by private contractors allegedly at the direction of former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private investigator and the resignation of a number of executives.

The former head of Credit Suisse’s flagship domestic bank, perceived as a steady hand, Gottstein sought to put to rest an era plagued by scandal. That assignment was short-lived.

In early 2021, he found himself dealing with the fallout from two huge crises. The bank’s exposure to the collapses of US family hedge fund Archegos Capital and UK supply chain finance firm Greensill Capital left it with huge litigation and reimbursement costs.

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

In April 2021, former Lloyds Banking Group chief Antonio Horta-Osorio was brought in to clean up the bank’s culture after the string of scandals, and announced a new strategy in November.

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

The bank embarked on another costly, comprehensive transformation project as Koerner and Lehmann set out to return the troubled 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 cut in exposure to risk-weighted assets and a $4.2 billion capital raising, which saw Saudi National Bank take a 9.9% stake to become the largest shareholder.

March Madness

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

Reports of liquidity concerns late in the year led to huge outflows of funds under management, which reached 110.5 billion Swiss francs in the fourth quarter.

After another sharp share price fall on the back of its annual results in early February, Credit Suisse shares entered March 2023 trading at a paltry 2.85 Swiss francs per share, but things were about to get worse.

On March 9, the company was forced to delay its 2022 annual report following a late request from the US Securities and Exchange Commission regarding a “technical review of previously disclosed revisions to the consolidated statements of cash flows” in 2019 and 2020.

The report was finally published the following Tuesday, with Credit Suisse noting that “significant weaknesses” were found in its financial reporting processes for 2021 and 2022, although it confirmed that the previously announced accounts were still accurate.

After suffering the global risk-off shock from the collapse of US-based Silicon Valley Bank, the combination of these remarks and confirmation that the outflows had not reversed Credit Suisse’s share price losses reinforced.

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

Credit Suisse announced on Wednesday evening that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank under a secured credit facility and a short-term liquidity facility.

The Swiss National Bank and the Swiss Financial Supervisory Authority said in a statement on Wednesday that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks”.

The support from the central bank and assurance of Credit Suisse’s financial position led to a 20% pop in the share price on Thursday, and may have reassured depositors for the time being.

However, analysts suggest that questions will remain about where the market will place the stock’s true value to shareholders in the absence of this buffer from Swiss authorities.