Credit Suisse is experiencing a deep-seated financial winter. This weekend, most investors have been examining Credit Suisse charts that resemble a malfunctioning fireworks display. Need a concise summary of the present economic tsunami? It began on Friday when Credit Suisse’s chief executive officer Ulrich Koerner issued a memo.
Credit Suisse Group is one of the major providers of financial services in the world. It provides its clients with private banking, investment banking, and asset management services. The bank serves its customers through three wealth management divisions with geographical focuses: Swiss Universal Bank, International Wealth Management, and the Asia Pacific.
Credit Suisse: Great financial crisis 2.0?
As the Federal Reserve intensifies its efforts to manage inflation, sending the currency soaring and bonds and stocks into a tailspin, there is growing concern that the central bank’s campaign could have unanticipated and perhaps severe repercussions.
In the past week, the markets entered a risky new phase in which statistically abnormal movements across asset classes have become frequent. Trouble is brewing in the gyrations and interactions of the vastly larger global markets for currencies and bonds, not in the stock market’s decline.
Credit Suisse is one of the organizations caught up in this financial insanity. As soon as the company’s CEO released a message, market chaos ensued. Under such conditions, it becomes extremely difficult to distinguish the signal from the noise.
I know it’s not easy to remain focused amid the many stories you read in the media – in particular, given the many factually inaccurate statements being made. That said, I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank.
Chief Executive Ulrich Koerner
For several months, the markets, business, political circles, and social media have been abuzz with speculation regarding the future of the Swiss banking giant.
A downbeat ending is likely to generate a shock comparable to that caused by the collapse of Lehman Brothers in September 2008. This catastrophe precipitated one of the most severe economic and financial crises since the Great Depression.
Here is a tale of this nightmare
The market capitalization of Credit Suisse was $22.3 billion a year ago. Its current market worth is only $10,4 billion. Credit Suisse’s stock price decreased by 56.2% in a single year to $3.98.
It’s a nightmare for the bank, which had survived the financial crisis without losing too many feathers. At the time of this crisis, Credit Suisse shares had plummeted, but only to $45, which seemed remarkable for a financial institution.
Employee morale has been dismal in recent days. Certain contractors’ contracts have yet to be renewed by the bank. No longer are departures replaced in reality.
Indeed, the investment bank’s errors have dragged Credit Suisse into a series of scandals in recent years, reigniting rumors of its insolvency or merger with its rival UBS.
The bank lost several billion dollars as a result of two scandals that occurred almost simultaneously in 2021.
The first is Greensill’s bankruptcy. The British company, founded in 2011, is a supply chain and accounts receivables lender that specializes in lending money to businesses in order for them to pay their suppliers. It then packages these companies’ debts into financial instruments, which it resells to investors.
When these investors, notably Credit Suisse, had reservations about the actual value of the bonds and abandoned Greensill in March 2021, the house of cards began to fall apart. Credit Suisse’s clients spent $10 billion on Greensill products.
Archegos Capital Management was implicated in the spring of 2021’s second scandal. Bill Hwang is an investor from South Korea who resides in New York. Due to insider trading charges, Tiger Asia, a company he financed in the 2000s, experienced a significant setback in 2012.
Hwang progressively revitalized Tiger Asia, which evolved into Archegos. While his company would manage $10 billion, Hwang persuaded banks, including Credit Suisse, to lend him $30 billion so he could invest more.
What is the plan to ensure recovery?
Credit Suisse requested that Archegos deposit funds at the outset of 2021. Hwang vowed to mitigate the risks. However, in March 2021, ViacomCBS shares plummeted, and the banks wanted Archegos to cover the losses, which it could no longer do. Consequently, Hwang’s business failed.
Credit Suisse has pledged to deliver a strategic plan on October 27 in an effort to avoid filing for bankruptcy. This should include the sale of investment banking activities, the “black sheep” that speculate the markets.
Koerner plans to move on from years of controversy (Archegos, Greensill Capital, Mozambique tuna bonds, Bulgarian money laundering, corporate espionage, etc.) that begins with the investment bank hemorrhaging funds. However, firing bankers has a significant initial cost, and a bank that promises to self-finance its turnaround rarely inspires investor confidence.
The bank told Reuters that it is undergoing a review of its strategy, which includes prospective divestitures and asset sales; an announcement is due on October 27, when the bank reports its third-quarter results.
Reuters reported that Credit Suisse has been in talks with investors to raise capital with different eventualities in mind, including the possibility that the bank may “essentially” abandon the U.S. market, citing sources familiar with the situation.
