Will Credit Suisse (CSGKF) pull through?
For several months there has been speculation on the markets, in business and politics as well as in social networks about the future of the Swiss banking giant.
The No. 2 Swiss bank and one of the largest banks in the world is in deep trouble and is currently struggling to survive. A negative outcome is likely to trigger a shock similar to that of the bankruptcy of the US bank Lehman Brothers in September 2008. This event triggered one of the worst financial and economic crises since the global economic crisis.
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nightmare
A year ago, Credit Suisse had a market cap of $22.3 billion. Today, its market value is just $10.4 billion. Credit Suisse shares fell 56.2% to $3.98 in a year.
It’s a real nightmare for the bank that managed to survive the financial crisis without losing too many feathers. At the time of this crisis, Credit Suisse shares were certainly down, but they had only fallen to the $45 level, which seemed like a feat for a bank at the time.
What happened? how did we get here
In recent days, staff morale has been somber. The bank has not yet renewed the contracts of certain contractors. Departures aren’t really being replaced anymore, TheStreet has learned. It’s a savings plan.
The talent goes. The bank just lost one of its senior dealmakers, Jens Welter, who joined Citigroup after 27 years in the establishment. Welter was Global Co-Head of Banking when he left. Another departure is head of global credit products Daniel McCarthy.
“I’m aware that there is a lot of uncertainty and speculation both outside and inside the company,” CEO Ulrich Körner told employees in a memo on September 30 Hear directly from me during this challenging time. So I will keep you all regularly updated until then.”
In the memo, seen by TheStreet, the CEO explained that “this is a critical moment” for the bank and warned employees that the rumors and speculation would continue and get louder.
Stock price versus company health
He assured them that the stock price did not reflect the company’s financial health.
“I trust you will not confuse our daily share price performance with the bank’s strong capital base and liquidity position,” he said.
“We are in the process of transforming Credit Suisse for a long-term, sustainable future – with significant potential for value creation,” added Körner. “I am confident that we have what it takes to succeed.”
Credit Suisse is a universal bank offering traditional services and products to consumers primarily in Switzerland. But the establishment is known worldwide for its investment banking activities — trading, deals like mergers and acquisitions, bonds, securities, etc. — and wealth management businesses. It is the investment bank that got the company into this difficult situation, even if it was one of Credit Suisse’s major sources of income and profit for a long time.
The Scandals: Greensill, Archegos
In fact, the investment bank’s mistakes have plunged Credit Suisse into a string of scandals in recent years, reviving speculation about its bankruptcy or its merger with rival UBS.
Two scandals happened almost in a row in 2021, causing the bank to lose billions of dollars.
The first is Greensill’s bankruptcy. Founded in 2011, the UK company is a supply chain and accounts receivable lender specializing in lending money to businesses to enable them to pay their suppliers. It then wraps those companies’ debt into securities that it resells to investors.
The house of cards began to crumble when those investors, including Credit Suisse, had doubts about the true value of the debt and left Greensill, which subsequently filed for bankruptcy in March 2021.
Credit Suisse invested $10 billion of its clients in Greensill products.
The second scandal in spring 2021 concerned the family office Archegos Capital Management. Bill Hwang is a South Korean investor based in New York. Tiger Asia, a company he financed in the 2000s, suffered a severe setback in 2012 amid insider trading allegations. Hwang gradually revived Tiger Asia, which became Archegos.
While his company would manage $10 billion, Hwang convinced banks, including Credit Suisse, to lend him $30 billion to invest more. In 2020 he invested heavily in ViacomCBS (VIACA) , which saw the value of their shares soar.
27 Oct: D-DAY
In early 2021, Credit Suisse asked Archegos to deposit funds. Hwang promised to reduce the risks. But in March 2021, ViacomCBS shares plummeted and banks asked Archegos to cover losses, which it could no longer do. As a result, Hwang’s company went bankrupt.
“The investigation found a failure to effectively manage risk in the Investment Bank’s prime services business through both the first and second lines of defense and a lack of risk escalation,” concluded an independent investigation commissioned by Credit Suisse.
“A failure to control limit overruns across both lines of defense was also identified in the same deal, reflecting insufficient execution of oversight responsibilities in the investment bank and risk function, and a lack of prioritization of risk mitigation and enhancement measures (e.g. dynamic margining).”
To avoid filing for bankruptcy, Credit Suisse has promised to present a strategic plan on October 27. The markets are speculating that this will involve the sale of the company’s investment banking activities.
The bank “is on track with its comprehensive strategic review, including potential divestitures and asset sales,” it said Sept. 26.
Survival will require refocusing on wealth management, industry sources say.
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