The Swiss declare that the US banking disaster finally introduced down Credit score Suisse

Axel Lehmann, Chairman of the Board of Directors of Credit Suisse Group AG, Colm Kelleher, Chairman of the Board of Directors of UBS Group AG, Karin Keller-Sutter, Minister of Finance of Switzerland, Alain Berset, President of Switzerland, Thomas Jordan, President of the Swiss National Bank (SNB), Marlene Amstad, President of the Swiss Financial Market Supervisory Authority (FINMA), left to right, during a press conference in Bern, Switzerland, on Sunday March 19, 2023.

Pascal Mora | Bloomberg | Getty Images

Following Swiss credit‘s “emergency rescue” by rival UBSSwiss authorities have placed great emphasis on the role of US regional bank failures in marginalizing the struggling Swiss lender.

Credit Suisse’s recent plunge began with the collapse of US Silicon Valley Bank, but was amplified when the 167-year-old Swiss bank announced it had found “material weaknesses” in its accounting procedures.

The final blow was then confirmed by the top investor, the National Bank of Saudi Arabia, that it could no longer provide Credit Suisse with further funds, prompting the announcement of a loan of up to 50 billion Swiss francs (US$54.2 billion). dollars) from the Swiss National Bank. At that point, Credit Suisse shares had fallen about 98% from their all-time high in April 2007.

The credit intervention ultimately failed to restore investor confidence, and Swiss authorities brokered the bank’s bailout sale to UBS for CHF 3 billion over the weekend.

“The latest developments emanating from the banks in the USA hit us at the most inopportune moment. Once, like last year, we were able to overcome the deep market uncertainty, but not this second time,” said Axel Lehmann, Chairman of the Board of Directors of Credit Suisse press conference on Sunday evening.

“The accelerating loss of trust and the escalation of the past few days have made it clear that Credit Suisse can no longer exist in its current form. We are happy to have found a solution that I am convinced will bring lasting stability and security to customers, employees, the financial markets and to Switzerland.”

SNB President Thomas Jordan also complained about the “US banking crisis” as an accelerated “loss of confidence in Switzerland” with an impact on Credit Suisse’s liquidity.

However, the downward spiral in Credit Suisse stock price and mounting capital outflows were underway well before the collapse of Silicon Valley Bank earlier this month. Switzerland’s regulator FINMA has come under fire for allowing things to worsen after years of losses and scandals at the bank.

Mark Yallop, chairman of the UK’s Financial Markets Standards Board and former UK CEO at UBS, told CNBC on Tuesday that he agreed with the broad assessment that Credit Suisse’s demise was “idiosyncratic”.

“It’s unfortunate that the problems with some of the smaller US banks over the last two or three weeks have come at the same time as this problem with Credit Suisse, but the two are vastly different and largely unrelated,” he said.

“The problems at Credit Suisse have to do with a long history of revolving doors at the top of the company in terms of management, a changing plan and in addition to a number of operational risks and control and compliance issues.”

The final straw that sent the share price to an all-time low ahead of a $50 billion loan from the SNB last Thursday that ultimately failed to restore markets’ confidence in the bank was the announcement by top investor, the National Bank of Saudi Arabia, that If this is possible, Credit Suisse will not make any further funds available.

Financial products across the industry have become more toxic, says Credit Suisse shareholder

“With a bank collapse you never know when the moment of crisis will come, but that was the moment when investors finally threw in the towel and said enough is enough and the actions we saw over the weekend became quite a lot inevitable,” Yallop added.

Additionally, the swift action of the Federal Reserve and Treasury Departments has been widely credited with successfully containing a potential contagion in the US financial system, raising the question of how much blame for Credit Suisse’s demise can really be attributed to the collapse of the SVB.

In contrast, the Swiss banking and regulatory system has come under criticism.

Steven Glass, a managing director and analyst at Pella Funds Management, told CNBC last week that the collapse in Credit Suisse’s stock price was a long time coming and that the loss of customer confidence was actually crystallized by the bank’s involvement with Greensill Capital in the collapse year 2021.

“The problem with Greensill was actually a huge problem because this fund was marketed to a lot [Credit Suisse’s] high net worth individuals as a very safe fund for making returns in a low yield world, and when that exploded a whole lot of their franchises lost money and they basically lost faith in Credit Suisse,” Glass told CNBC’s “Capital Connection” .

Switzerland's reputation for financial stability

After September 11, 2001, new regulations forced Swiss banks to abandon the client confidentiality that had been their modus operandi for centuries, and banks like Credit Suisse took greater risks to maintain profitability and discourage wealthy clients from taking their money elsewhere , argued Glass.

He pointed out that in this context, Greensill’s loss of confidence in Credit Suisse and a litany of other issues over the years meant the bank had “shot itself in the foot”.

“Yes this came at the same time as SVB and yes as a signature bank and we can understand why you might say it is a broader banking crisis but we actually believe many of these banks have actually had a problem with their business model, more than an open banking crisis,” concluded Glass.

This was confirmed by Opimas CEO Octavio Marenzi, who told CNBC’s Capital Connection on Tuesday that the Credit Suisse debacle meant Switzerland’s “carefully crafted, honed reputation” for financial stability “lays in tatters.”

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