Credit Suisse: should we be worried?
“Woe to them that devise iniquity, and work evil upon their beds! When the morning is light they practice it, because it is in the power of their hand” Micah 2:1
Credit Suisse: what is happening at Swiss bank and should we be worried?
The Guardian by Kalyeena Makortoff ~ March 16, 2023
Panic has gripped global banking stocks for the second time in a week: the wave of fear prompted by the collapse of California’s Silicon Valley Bank (SVB) has been followed by fresh jitters over the stability of major European bank Credit Suisse.
What’s happening at Credit Suisse?
Shares in the Swiss lender plunged more than 30% at one point on Wednesday to a record low of about 1.56 Swiss francs (£1.40) a share, after its top shareholder, the Saudi National Bank (SNB), ruled out providing it with fresh funding because of regulations that cap its stake – now 9.9% – at 10%.
SNB’s chairman, Ammar Al Khudairy, told Reuters that Credit Suisse was “a very strong bank” and was unlikely to need more cash after raising 4bn Swiss francs (£3.59bn) to fund a major restructuring plan in autumn last year. However, his funding cap comments spooked investors, who feared it could limit emergency cash from investors in the Middle East.
That compounded panic about potential weaknesses across a global banking sector still reeling from SVB’s collapse as well as fears over continuing problems at the Swiss lender, which as Europe’s 17th largest lender by assets is far larger than SVB and deemed systemically important to the global financial system.
Panic has gripped global banking stocks for the second time in a week: the wave of fear prompted by the collapse of California’s Silicon Valley Bank (SVB) has been followed by fresh jitters over the stability of major European bank Credit Suisse.
Credit Suisse: what is happening and should we be worried?
Plunge in bank’s share price adds to fears over weaknesses in banking sector following collapse of SVB
Panic has gripped global banking stocks for the second time in a week: the wave of fear prompted by the collapse of California’s Silicon Valley Bank (SVB) has been followed by fresh jitters over the stability of major European bank Credit Suisse.
How worried should we be?
The Bank of England reiterated its statement that the UK banking system is not at risk and “remains safe, sound, and well-capitalised”. The Guardian understands that staff at the Bank are continuing to monitor developments in the financial sector closely.
Stocks in many other European banks also plunged on Wednesday as traders took fright. However, it is important to remember that share prices reflect investor sentiment rather than the real strength of balance sheets.
Market movements can cause customers to panic and pull cash, creating a run on deposits that is risky for smaller banks that rely more heavily on client cash. However, larger banks such as Credit Suisse are meant to be in a much stronger position, in part due to government rules and regulators’ annual stress testing brought in after the financial crisis.
But US banks are collapsing too: is this is a re-run of 2008?
Panic over Credit Suisse comes after the collapse of crypto lender Silvergate last Thursday, SVB on Friday and New York-based Signature on Sunday. However, Credit Suisse’s problems are also relatively unique and not new, with a string of major financial losses and scandals that have worried investors and fuelled a recent client exodus.
Credit Suisse customers – primarily wealthy clients and businesses rather than everyday savers – have been pulling money from the bank for months, leading to more than 111bn Swiss francs (£99.7bn) of outflows late last year. It was not immediately clear on Wednesday whether client withdrawals had gathered pace as a result of its plunging share price.
Some investors are also worried about potential unrealised losses lurking in the investment portfolios of European banks. SVB’s troubles accelerated after it suffered losses on the bonds it tried to sell as customers pulled cash.
In an attempt to calm fears, Credit Suisse chair Axel Lehmann said on Wednesday morning that government assistance “isn’t a topic” for the lender, adding: “We have strong capital ratios, a strong balance sheet. We already took the medicine.” The Financial Times reported unnamed sources suggesting the lender had appealed to both Finma and the Swiss National Bank for a public show of support in an apparent bid to shore up investor confidence.
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How far back do Credit Suisse’s problems go?
A string of controversies have beset Switzerland’s second-largest lender, including playing accomplice in crime way back to the days of Ferdinand and Imelda Marcos of the Philippines from their national treasuries in the 1980s.
The revelations that Credit Suisse has been used by crooks, money launderers and corrupt politicians are a public relations crisis for the banking giant.
The Guardian by Kalyeena Makortoff and David PeggT ~ February 22, 2022
But the Suisse secrets investigation by the Guardian and its reporting partners is only the latest in a string of controversies to beset Switzerland’s second-largest lender.
We take a look at some of the bank’s biggest scandals over the past few decades.
1986: Fake names for Ferdinand and Imelda Marcos
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Credit Suisse is implicated in helping to store some of the estimated $5bn-$10bn that the Philippine dictator Ferdinand Marcos and his wife, Imelda, stole from the country during his three terms as president.
It later emerged that Credit Suisse opened accounts for the couple under the fake names “William Saunders” and “Jane Ryan” helping to shield their funds from scrutiny.
In 1995, a Zurich court ordered banks, including Credit Suisse, to return $500m of stolen funds to the Philippines.
1999: Japanese ‘shredding party’
Japanese authorities fined Credit Suisse and revoked its licence over a “shredding party”, at which bankers destroyed evidence related to an investigation into whether it was helping companies conceal their losses.
A bank spokesperson said: “Serious lessons have been learned, corrective actions initiated and disciplinary steps completed.”
2000: Banking funds linked to a Nigerian dictator
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Switzerland’s Federal Banking Commission reprimanded Credit Suisse for accepting about $214m-worth of funds linked to corruption by the Nigerian military dictator Sani Abacha in the 1990s.
The lender was criticised for failing to recognise that his two sons were politically exposed. Credit Suisse said it had improved its monitoring procedures and staff who dealt with Abacha’s regime had left the bank.
2011: German tax evasion
Credit Suisse agreed to pay €150m to settle an investigation into tax evasion by about 1,100 of its German clients.
“A complex and prolonged legal dispute has been avoided, with an agreed solution that provides legal certainty,” the bank said.
2014: US tax evasion
Credit Suisse was fined $2.6bn and pleaded guilty to helping Americans evade taxes for decades in one of the bank’s most explosive scandals to date.
The investigation was launched when the former UBS banker Bradley Birkenfeld passed information to US authorities in 2007.
A Senate investigation uncovered aggressive tactics used by Swiss banks, with Credit Suisse having recruited clients at high-end events, courted a potential customer with free gold, and even delivered sensitive bank statements hidden in the pages of a Sports Illustrated magazine.
Authorities eventually pressured Switzerland into unilaterally disclosing account information about US taxpayers from 2014.
Credit Suisse said: “We deeply regret the past misconduct that led to this settlement.”
2016: Italian tax evasion
Credit Suisse reached a €109.5m settlement with Italian authorities over allegations it helped clients hide funds and dodge taxes through complex insurance policies, which were reportedly routed through its Liechtenstein and Bermuda subsidiaries.
Credit Suisse said it welcomed the deal.
2017: Anti-money-laundering fine related to 1MDB
Singapore’s financial regulator fined Credit Suisse $700,000 for breaching money-laundering rules in transactions linked to 1MDB, the Malaysian investment fund at the centre of a $4.5bn corruption scandal.
Credit Suisse said it took its money-laundering obligations seriously and was “firmly committed to upholding the high standards of the Singapore financial centre.”
“Woe to them that devise iniquity, and work evil upon their beds! When the morning is light they practice it, because it is in the power of their hand” Micah 2:1
Joel Huan
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