The Swiss banking giant is involved in a series of financial scandals that are now threatening its future. Will
Credit Suisse (CSGKF) overcome the difficulties?
For months, speculation has been going on around the future of the Swiss banking giant on the market, business and politics, and on social networks.
The second largest bank in Switzerland and one of the world's largest banks are in trouble and are currently fighting for survival. Negative results are likely to trigger a shock similar to Bank of America Lehman Brothers went bankrupt in September 2008. This incident triggered one of the worst financial and economic crises since the Great Depression.
Nightmare
A year ago, Credit Suisse's market value was US$22.3 billion. Today, its market capitalization is only $10.4 billion. Credit Suisse shares fell 56.2% to $3.98 in a year.
This is a real nightmare for banks that have successfully overcome the financial crisis without losing much advantage. At the time of this crisis, Credit Suisse's share price had certainly fallen, but fell to just $45, which seemed like a feat for a bank at the time. What happened to
? How did we get here?
In recent days, employees' morale has been depressed. The bank has not renewed the contracts for certain contractors. TheStreet learned that leaving is no longer truly replaced. This is a tightening therapy.
people left. The bank has just lost a senior dealmaker, Jens Welter, who left to join Citigroup after 27 years at the agency. Welter was global co-head of banking when he left. Another resigned is Daniel McCarthy, the head of , the global credit product.
"I realize there is a lot of uncertainty and speculation outside and inside the company," CEO Ulrich Kornar told employees in a September 30 memo. “While you will understand that I can’t share the details of our transformation plan ahead of October 27, I also want to make sure you get my messages directly during this challenging time. So, until then, I will send you the latest news regularly.” In this memo seen by TheStreet, the CEO explained that this is “a critical moment” for the bank and warned employees that rumors and speculation will continue and will become louder.
stock price and company health
He assured them that the stock price does not reflect the company's financial situation.
"I believe you won't confuse our daily stock price performance with the strong capital base and liquidity status of the bank," he said.
Körner added: "We are reshaping Credit Suisse to achieve a long-term, sustainable future - with huge value creation potential." "I believe we have everything we need to succeed."
Credit Suisse is an all-round bank that mainly provides traditional services and products to consumers in Switzerland. But the institution is well-known worldwide for its investment banking business—transactions, mergers and acquisitions, bonds, securities and other transactions—and wealth management businesses. It is investment bank that has put the company in these dilemmas, even though it has been one of Credit Suisse’s main sources of income and profit for a long time.
scandal: Greensill, Archegos
In fact, the investment bank's mistake has caused Credit Suisse to fall into numerous consecutive scandals in recent years, re-igniting speculation about its bankruptcy or merger with its rival UBS .
Two scandals in 2021 almost occurred one after another, causing billions of dollars in losses to banks.
First of all, Greensill's bankruptcy.Founded in 2011, the UK company is a supply chain and accounts receivable lender that specializes in providing loans to companies so that they can pay their suppliers. It then packages the debts of these companies into financial securities and resells them to investors.
When these investors, including Credit Suisse, had doubts about the true value of the debt and gave up Greensill, the House of Cards began to collapse, which subsequently filed for bankruptcy in March 2021.
Credit Suisse invests $10 billion in its customers in Greensill products.
The second scandal in spring 2021 involved family office Archegos Capital Management. Bill Hwang is a South Korean investor based in New York. Tiger Asia, a company he funded in the 2000s, suffered a major setback in 2012 over insider trading allegations. Hwang gradually revived Tiger Asia, which became Archegos.
While his company will manage $10 billion, Hwang convinced banks, including Credit Suisse, to lend him $30 billion to make more investments. In 2020, he invested heavily in Viacom CBS (VIACA), and his stock price soared.
10-27: D-day
At the beginning of 2021, Credit Suisse asked Archegos to deposit funds. Huang promises to reduce risks. But in March 2021, Viacom CBS shares plummeted and banks asked Archegos to make up for losses, but it could no longer do it. As a result, Huang's company went bankrupt. An independent investigation ordered by Credit Suisse concluded: "The investigation found that neither the first nor the second line of defense effectively managed the risks of the investment bank Prime service business and lacked risk escalation."
"In the same business, it also found that due to insufficient performance of regulatory responsibilities in investment banks and risks, as well as the lack of prioritization of risk mitigation and enhancement, the failure to control over limit behavior measures (such as dynamic margin) of the two lines of defense."
To avoid filing for bankruptcy, Credit Suisse has promised to propose a strategic plan on October 27. This should include divestment of investment in banking, black sheep, speculation markets.
The bank said on September 26 that "its comprehensive strategic assessment is progressing smoothly, including potential asset divestitures and asset sales."
Industry sources said that survival needs to pay attention to wealth management again.
