Fall of credit suisse :
On Sunday, March 19th, a 167-year-old Swiss bank, Credit Suisse, came to a sudden and abrupt end as its rival UBS agreed to take over the bank for all of 3.2 billion dollars.
UBS will give one of its shares for 22.48 shares of Credit Suisse in an all-share deal. The merger was facilitated almost forced by Swiss banking authorities with the Swiss Central Bank, with the SNB guaranteeing to pay 9 billion Swiss dollars to UBS on potential losses; 17 billion dollars of the 81 bonds of Credit Suisse have also been written off besides the SNB.
The SNL bank has also promised 100 billion dollars by way of a liquidity facility, so what went wrong at this storied Swiss bank, which was set up in 1856 to arrange funds for Switzerland’s railways? Well, the most recent blow came last week on Tuesday, March 14th, when the bank said it found, and I quote, “material weaknesses” in its 2021 and 2022 financial reporting process.
These included “no effective risk assessment”; Detect anomalies in financial reports. The next blow came the next day, when the Saudi National Bank, Visa’s biggest backer, said it wouldn’t buy moshes in the Swiss bank because rules make it tough for one bank to hold more than 9.9 percent of another bank’s assets, then panic set in and the share price crashed and depositors started withdrawing despite the SNB promising 54 billion Swiss francs in liquidity.
Finally, on Sunday, the Swiss banking authorities and the SMB persuaded UBS to buy out Credit Suisse, so let’s go back and see what went wrong. Credit Suisse’s problems began in 2021, when two of its large clients collapsed. The first was 5.5 billion dollars of losses, which credit threes had to take on when a secretive US-based hedge fund, or Chigos.
Capital Management collapsed in the same year, almost the same month; in fact, one of its borrowers, Greenville Capital, and an Australia- and UK-based finance company also folded up, forcing Credit Suisse to freeze billions in investment funds.
It also suffered a direct loss of 140 million dollars in loans that it had lent to Green Cell. Credit Suisse suffered even more reputational damage and a fine of $475 million over a corruption scandal. Scandal involving Mozambique’s tuna bonds Credit Suisse has arranged loans worth 1.3 billion dollars between 2012 and 2016 to develop the tuna fishing industry in Mozambique.
However, the loan was kept a secret from the country’s parliament; the money never reached Mozambique; it was laundered through an account in Abu Dhabi and reached politicians, contractors, and bankers. Credit Suisse reported a net loss of 1.7 billion Swiss francs in 2021 and a further 7.3 billion Swiss francs lost in 2022.
Deposits fell 40 percent last year to 234 billion Swiss francs, equivalent to 252 billion US dollars, while total assets dropped 30 percent to 531 billion Swiss francs. That’s about 571 billion US dollars. That’s because the bank was scaling back its businesses in spite of reporting such hefty losses in 21 and 22. The bank said on Tuesday it found material weaknesses in its 2021 and 2022 financial reporting processes.
The announcement came at a time when investor confidence in banks was already low due to the twin banking collapses in the U.S. SB and Signature Banks, although the reasons for the collapse of the U.S. banks had nothing at all to do with what was Royal in Credit Suisse.
The bank faced as much as 10 billion dollars in customer outflows every day; last week investor and depositor confidence failed to recover until Friday, and Swiss authorities over the weekend forced its merger with the country’s largest bank, UBS.
