How did Credit Suisse sink so low? Confidence in CS and the CS leadership has been tarnished for months. This crisis is the result of an overall lamentable course of business in recent years, which is characterized by losses in the billions. In addition, there are self-inflicted scandals that have permanently damaged the bank’s reputation.
The loss of trust can be seen in two developments: Firstly, over the past twelve months, CS customers have withdrawn well over 100 billion Swiss francs from the bank and presumably deposited them with other financial institutions. To a certain extent, this outflow of funds was a gradual “bank run”, which means that you have many customers simultaneously handed over their money. If large sums are involved – as in the case of CS – this development can get a bank into trouble.
Second, the stock price has been plummeting for years. At its best, in the mid-2000s, CS shares cost over 80 francs. Since then, it has steadily gone downhill to the current low of less than one franc per share.
What was the reason why you “had” to act quickly now? The sharp rise in interest rates in recent months, particularly in the US, has recently caught various US banks on the wrong foot. The Silicon Valley Bank from California collapsed because of this and had to be rescued by the US government. This case has caused great uncertainty internationally and also raised doubts about the stability of the ailing CS.
In addition, the CS leadership has not been able to credibly demonstrate in the past few days that CS is stable enough to weather this storm. Ultimately, the basics are missing – trust in the bank. And this trust cannot be generated with money or laws.
It is a crisis of confidence and not a liquidity problem. But the crisis of confidence has existed for some time. Why did the lack of trust become a problem right now? When it came to new problems and losses, the CS bosses in recent years always spoke of the legacy of their predecessors. But with every new loss of billions, with every new scandal, the image of a bank that has insufficient control of the banking business has solidified. An example is the devastating verdict by the Swiss Financial Market Supervisory Authority at the end of February 2023, in which it states that the bank had not “appropriately identified, limited and monitored” the risks “for years”.
At the same time, the bank failed to stop the outflow of funds. On the contrary: Apparently it has even gotten worse recently and has become a threat to the very existence of CS. The bank was and is well capitalized and meets the legal requirements of the Swiss authorities, which means it has a sufficiently large financial cushion. But the bank’s management has made contradictory statements in the past few days, which have led to doubts about the stability of the bank.
Could there have been another possible scenario? Other scenarios would have been quite conceivable: Selling all or part of CS to a foreign bank, winding up CS and letting it go bankrupt, nationalizing the bank or splitting up CS by continuing the Swiss business as an independent bank and selling or closing the remaining business areas would have been.
From the point of view of those involved, all of these variants would have either had unforeseeable consequences or required more time for implementation. Time that CS no longer had because a solution had to be found last weekend.