Credit Suisse’s collapse in March this year sent shockwaves through the global financial system. The 167-year-old bank, which was formerly one of Switzerland’s two top lenders, had previously weathered the financial crisis of 2008.
Yet by March 2023, Credit Suisse had found itself in an unmanageable crisis that led to its acquisition by Swiss rival UBS
UBS,
for 3 billion Swiss francs ($3.5 billion) in a deal brokered by the Swiss state in a bid to avert a global financial crisis.
Now, in a new report published on Tuesday, Switzerland’s financial regulator has given its verdict on why Credit Suisse ended up in the situation it found itself in. Here are six key charts from the Swiss Financial Market Supervisory Authority, or FINMA, report that explain what happened.
Share price
A series of scandals and major financial losses saw Credit Suisse suffer repeated hits to its share price in the years following the 2008 financial crash. These scandals undermined confidence in the bank, making it harder for Credit Suisse to either attract customers or raise capital from investors and public markets.
The bank’s steady decline saw the value of shares in Credit Suisse drop sharply over a 15-year-period, from all-time highs of 96 Swiss francs in April 2007 to just 2.76 Swiss francs at end of 2022. At the time of its acquisition by UBS
UBS,
in June 2023, Credit Suisse shares were worth just 0.8 Swiss francs each.
Volatility
Credit Suisse’s financial results were characterized by a high degree of volatility. This situation was made worse by the fines and settlements the bank was forced to pay out. This volatility undermined trust and confidence in the bank.
Credit Suisse, meanwhile, continued to pay out significant bonuses to its staff, even in years when it reported major losses. This practice contributed to its poor risk culture. The lender’s own efforts to scale back its investment banking division in order to limit this volatility also failed and in turn failed to impress the market.
Executive Shakeups
Shakeups of Credit Suisse’s board, particularly in the aftermath of the Greensill and Archegos scandals, led to a loss of institutional knowledge at the lender. This left Credit Suisse’s board unable to find long-term solutions to its shortcomings, leading to a “poor risk culture” inside the institution.
This poor risk culture led rise to repeated scandals at the bank that in turn led to the erosion of its cash reserves due to the losses, fines, and settlements that arose from them. These scandals saw Credit Suisse pay 15 billion Swiss francs worth of fines and settlements in the years after 2010.
Deposit flight
Credit Suisse was hit by a major wave of withdrawals in October 2022 as a result of rumors spread on social media. The rumors, that spread particularly quickly in Asia, included claims that a major bank was on the brink of collapse.
With confidence in Credit Suisse already low, customers started pulling their cash out of the bank, leading to something akin to a digital bank run carried out via electronic channels.
In March, this crisis of confidence was worsened by the collapse of the U.S. Silicon Valley Bank and media reports that Credit Suisse’s top shareholder, Saudi National Bank, had ruled out further capital injections.
Liquidity
Prior to the run on the lender’s reserves, Credit Suisse had significantly increased its liquidity reserves following interventions from Swiss regulators made in response to the COVID-19 pandemic in 2020.
These reserves acted as a buffer for the first major wave of outflows in October 2022 giving both the bank and Switzerland’s regulators time to prepare for a further deterioration of Credit Suisse’s position.
The lender’s buffers were, however, insufficient to save it from the wave of withdrawals that saw 138 billion Swiss francs pulled out of the bank in the fourth quarter of 2022. Swiss authorities later intervened to avert a global financial crash.
SNB injections
Vast sums of state money from the Swiss National Bank (SNB) were injected into Credit Suisse, to save it from collapse. All in all, Credit Suisse had received 168 billion Swiss francs in support by the end of March 2023, prior to the bank’s merger with rival UBS.
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