Switzerland’s role as banker to the world’s rich is underpinned by institutional discretion and a reputation for dull reliability. That only makes the scandals, public legal battles and mounting losses at Credit Suisse Group AG all the more impressive and difficult to fathom.
By mid-March, concern over the bank’s growing problems snowballed and its shares plummeted, prompting management to turn to Swiss banking authorities for a public vote of confidence.
What went wrong?
Credit Suisse’s failings include a criminal conviction for allowing drug dealers to launder money in Bulgaria, involvement in a corruption case in Mozambique, a spying scandal involving a former employee and executive, and a massive leak of client data to the media.
His association with disgraced financier Lex Greenseal and failed New York-based investment firm Archegos Capital Management compounded the sense of an establishment with a firm grip on its affairs. Many tired customers voted with their feet, leading to an unprecedented customer exodus in late 2022.
What caused the recent decline in stocks?
Chief Executive Officer Ulrich Körner launched a large-scale partnership to woo nervous customers and their cash. The effort appeared to bear fruit by January, as it reported “net positive” deposits.
However, on March 9, the US Securities and Exchange Commission took an interest in the bank’s annual report, forcing a delay in its publication. The panic spread after US regional lender Silicon Valley Bank failed, a victim in part of risky investments and rising global interest rates that eroded the value of its bonds. Investors began to shy away from what smacked of bank risk and deposit flight.
How bad did it get?
On March 15, Credit Suisse’s shares fell again after the chairman of its largest shareholder, the National Bank of Saudi Arabia, ruled out further investment in the company.
That prompted Credit Suisse to turn to the Swiss central bank for a public statement of support. The cost of insuring bank bonds against default for one year has reached levels not seen for major international banks since the 2008 financial crisis.
As other banks sought to hedge their counterparty risk for deals with Credit Suisse, quoted prices for one-year credit default swaps rose from 836 basis points, indicating a 10 percent default chance on March 14, to above 3,000 basis points.