Following a decline in the value of its shares and bonds, which heightened concerns about a potential global banking crisis, Credit Suisse (CSGN.S) announced on Thursday that it would borrow up to $54 billion from the Swiss central bank to support liquidity. According to analysts, that might not be sufficient.
WHAT HAPPENED TO CAUSE THE LATE SHARE SLUMP?
The 167-year-old Swiss lender is currently in a mess that can be attributed to a spate of scandals over many years, changes in top management, multi-billion dollar losses, and a lackluster strategy.
Losses resulting from the failure of the investment funds Archegos and Greensill Capital in 2021 were what started the sell-off in Credit Suisse’s stock.
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In January 2022, only eight months after being hired to turn around the failing bank, Antonio Horta-Osorio resigned as chairman due to a COVID-19 regulation violation.
Ulrich Koerner, the company’s new CEO and a restructuring expert, launched a strategic assessment in July, but it was not well received by investors.
Customers ran away from the bank in the autumn after hearing an unfounded rumor about its impending failure.
When the bank reported its largest annual loss of 7.29 billion Swiss francs since the financial crisis, Credit Suisse acknowledged last month that customers had withdrew 110 billion Swiss francs in the fourth quarter. Credit Suisse has asked investors for 4 billion Swiss francs in December.
The bank’s largest sponsor, Saudi National Bank (1180.SE), told reporters on Wednesday that it was comfortable with the bank’s rehabilitation strategy but was unable to provide extra funding due to regulatory restrictions.
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Over the past year, the shares have decreased by 75%.
WHAT ACTIONS CAN CREDIT SUISSE TAKE TO REST ASSURANTS?
Although Credit Suisse has pledged to borrow up to $54 billion to support liquidity and investor confidence, several experts doubt it will be sufficient to calm investors.
One way to support market confidence might be to win the support of key investors. Oyalan Group in Saudi Arabia and the Qatar Investment Authority are two of its investors.
GIC, a Singapore sovereign wealth fund, became an investor in UBS during the early stages of the global financial crisis in 2008, however GIC ultimately lost money as a result of the stake sell-down.
Since that Credit Suisse owns an asset management company and a share in SIX Group, which operates the Zurich stock exchange, selling holdings in diverse assets is an option.
Credit Suisse has already revealed plans to spin off its volatile investment banking unit as part of a strategy to cater to wealthy clients.
CREDIT SUISSE: HOW IMPORTANT IS IT?
The bank is one of the biggest wealth managers in the world and, more importantly, it is one of the 30 banks that are globally systemically significant and whose failure would have an impact on the entire financial system.
A local Swiss bank, wealth management, investment banking, and asset management businesses are all part of Credit Suisse. By the end of 2021, it will employ slightly over 50,000 people and have 1.6 trillion Swiss francs in assets under management.
Credit Suisse serves as the private bank for a huge number of business owners, wealthy and ultra-wealthy individuals, and organizations with more than 150 offices spread over almost 50 nations.