Concerns over the future of Credit Suisse Group AG (NYSE:CS) increased on Wednesday after its largest shareholder ruled out injecting more capital into the scandal hit bank.
Trading in the Swiss bank was repeatedly halted as shares tanked more than 25% after the chair of the Saudi National Bank, which bought a 10% stake last year, said no more financial assistance would be provided.
Asked on Bloomberg TV whether the SNB would be open to providing capital to Credit Suisse if there was a call for additional liquidity, SNB chair Ammar Alkhudairy said: “The answer is absolutely not, for many reasons outside the simplest reason which is regulatory and statutory.”
He said owning more than 10% Credit Suisse would bring additional regulatory requirements.
It is the latest crisis to grip the embattled Swiss lender which has seen a string of scandals, losses, high-profile risk management failures, and changes of leadership in its chequered history.
So how did we get here?
Credit Suisse began in 1856 when Alfred Escher founded Schweizerische Kreditanstalt (SKA) in Switzerland.
Through the decades, the bank expanded through mergers and acquisitions and by 2006 it was operating globally in private banking, investment banking and asset management.
But scandal after scandal rocked the bank from setting up fake accounts for the Philippines dictator Ferdinand Marcos and his wife, numerous sanctions breaches, tax evasion in Germany, the US and Italy, sub-prime fraud in the US, Greensill Capital, Archegos Capital, you get the picture.
More was to follow in 2022 when in February the bank became the first in history to undergo a criminal trial in Switzerland.
Authorities charged the bank with direct involvement in a Bulgarian cocaine-smuggling ring, with millions of euros laundered directly through the bank.
Furthermore, in February 2022 Credit Suisse suffered a massive data leak. The information disclosed on thousands of customer accounts revealed that the bank’s clientele included people traffickers, drug traffickers, and individuals involved in torture.
The financial fallout, the impact on the bank’s workforce, and the reputational damage caused by this series of scandals has been enormous.
Since 2020, Credit Suisse has faced US$4bn in litigation costs and suffered losses of US$4.09bn. In October 2022, the bank also reached a US$495mln settlement with United States regulators over its role in the 2008-2009 financial crisis. This fine follows a 2017 penalty of US$5.28bn for its role in the subprime mortgage crisis.
In late 2022 the bank disclosed that it was seeing “significantly higher withdrawals of cash deposits, non-renewal of maturing time deposits and net asset outflows at levels that substantially exceeded the rates incurred in the third quarter of 2022.” In the fourth quarter of 2022 the bank disclosed it had seen customer withdrawals of more than 110 billion Swiss francs.
Only on Tuesday the bank revealed that its auditor, PwC, had identified “material weaknesses” in its financial reporting controls after the US Securities and Exchange Commission demanded further clarity on flaws with the bank’s internal controls delaying the report of the 2022 annual report.
When it did publish its annual report on Tuesday, Credit Suisse said “management did not design and maintain an effective risk assessment process to identify and analyse the risk of material misstatements in its financial statements”.
After dealing with these scandals, Credit Suisse has seen its stock price drop from a pandemic-era high of US$12.30 to just US$1.79 today, an all time low.
Too big to fail?
The collapse in the share price has raised concerns about the financial viability of the bank which have been exacerbated by the current turmoil in the global banking industry following the collapse of SVB in the US.
Five-year credit default swaps on Credit Suisse debt widened to 574 basis points today from 549 bps at last close, according to data from S&P Global Market Intelligence, marking a new record high.
Higher rates indicate that the market feels that bankruptcy is more likely.
Credit Suisse chair Axel Lehmann said that financial assistance from the Swiss government “isn’t a topic” for the lender.
“We have strong capital ratios, a strong balance sheet,” he said, adding the bank was in the process of executing a radical restructuring aimed at arresting years of scandals and losses.
“We already took the medicine.”
Whether the medicine cures all the current ailments remains to be seen but the market gave its verdict today.