Credit Suisse: What’s Happening at the Swiss Bank and Should You Be Worried? | Banking

Panic gripped global banking stocks for the second time in a week: the wave of fear sparked by the collapse of Silicon Valley Bank of California (SVB) was followed by further jitters the stability of the major European bank Credit Suisse.

What’s going on at Credit Suisse?

Shares of the Swiss lender plunged more than 30% at one point on Wednesday to a record high of around 1.56 Swiss francs (£1.40) per shareafter its largest shareholder, the Saudi National Bank (SNB), ruled out providing it with new funding due to regulations that cap its stake – now at 9.9% – at 10%.

SNB Chairman Ammar Al Khudairy told Reuters that Swiss credit was ‘a very strong bank’ and unlikely to need more cash after raising 4bn Swiss francs (£3.59bn) to fund a major restructuring plan in the autumn of the year last. However, his comments on the funding cap spooked investors, who feared it would limit emergency liquidity for investors in the Middle East.

This added to panic over potential vulnerabilities in a global banking sector still reeling from the collapse of SVB, as well as fears over lingering problems at the Swiss lender, which, as 17th largest lender in Europe by assets is much larger than SVB and considered systemically important to the global financial system.

How worried should we be?

THE bank of england reiterated its statement that the UK banking system is not at risk and “remains safe, sound and well capitalised”. The Guardian understands that Bank staff continue to closely monitor developments in the financial sector.

Stocks in many others European banks also plunged on Wednesday as traders scared off. However, it is important to remember that stock prices reflect investor sentiment rather than the actual strength of balance sheets.

Market moves can cause customers to panic and withdraw money, creating a run on deposits that is risky for smaller banks that are more reliant on customer money. However, big banks such as Credit Suisse are believed to be in a much stronger position, in part due to government rules and annual regulator stress tests put in place after the financial crisis.

So, are the post-financial crisis rules not working?

After the chaos of 2008, regulators around the world introduced tighter restrictions, especially for banks deemed important to the global financial system. Most central banks and national regulators have introduced annual stress tests to check whether banks can withstand severe economic shocks and market turbulence, while continuing to support their customers.

In the worst-case scenario, systemically important banks are supposed to have enough capital, and so-called “living wills,” to ensure that they can fail in a relatively orderly fashion. However, these living wills have yet to be tested by an actual bank failure.

Swiss regulator Finma approved Credit Suisse’s emergency liquidation plans last year, but said some of its plans were “still not enough”.

But US banks are collapsing too: is this a repeat of 2008?

Panic over Credit Suisse comes next the collapse of crypto lender Silvergate last Thursday, SVB on Friday and New York-based Signature on Sunday. However, Credit Suisse’s problems are also relatively unique and not new, with a series of major financial losses and scandals that have worried investors and fueled a recent exodus of clients.

Credit Suisse customers – mostly high net worth and corporate clients rather than everyday savers – have been withdrawing money from the bank for months, resulting in more than 111 billion Swiss francs (£99.7 billion) ) releases at the end of last year. It was not immediately clear on Wednesday whether client withdrawals had accelerated due to the fall in its share price.

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Some investors are also worried about potential unrealized losses lurking in the investment portfolios of European banks. SVB’s problems accelerated after it suffered losses on bonds it tried to sell as customers withdrew cash.

In an attempt to calm fears, Credit Suisse Chairman Axel Lehmann said Wednesday morning that government aid “is not a topic” for the lender, adding: “We have strong capital ratios, a balance sheet We’ve already taken the drug The Financial Times has reported unnamed sources suggesting the lender has appealed to both Finma and the Swiss National Bank for a public show of support in an apparent attempt to boost confidence investors.

How far back do Credit Suisse’s problems go?

The bank is in the process of putting in place a major restructuring plan, intended to stem the large losses, which reached 7.3 billion Swiss francs (£ 6.6 billion) in 2022, and to revive hampered operations by several scandals over the past decade involving allegations of misconduct, evasion of sanctions, money laundering and tax evasion.

In the past three years alone, Credit Suisse has been caught up in corporate espionage after hiring professional spies to stalk outgoing executives; admitted to defrauding investors in connection with Mozambique Tuna bond loan scandal, resulting in a fine of over £350million; and been involved in the bankruptcy of lender Greensill Capital and US hedge fund Archegos Capital in 2021.

He also came under fire after the release of the Investigation of Swiss secrets by global media, including the Guardian in 2022, which showed he had served clients involved in torture, drug traffickingmoney laundering, corruption and other serious crimes for decades.

That same year, Swiss prosecutors found the bank guilty of helping to launder money on behalf of the Bulgarian mafia, although the bank denied wrongdoing and intended to appeal the decision.

But the problems have not yet disappeared. Earlier this week the lender admitted there had been “material weaknesses” in its internal controls related to financial reporting, but the insured bosses were working on a plan to “strengthen risk and control frameworks”.

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