Discover the reasons behind the collapse of Credit Suisse, including scandals, management changes, multi-billion dollar losses, and a lackluster strategy. Find out what led to the decline of this 167-year-old Swiss lender and its impact on the financial system.
The giant Swiss lender, Credit Suisse, has been in dire straits, with its shares losing over 75% of their value over the past year. The bank’s collapse can be traced back to a variety of issues, such as a series of scandals, management changes, multi-billion dollar losses, and a lackluster strategy.
One of the factors that contributed to the bank’s woes was a $2.1 million fine in 2022 for its failure to prevent money laundering by a Bulgarian cocaine trafficking gang. The sell-off in Credit Suisse’s shares started in 2021 after the collapse of investment funds Archegos and Greensill Capital.
Moreover, the resignation of Chairman Antonio Horta-Osorio in January 2022 for breaching COVID-19 rules, only eight months after his appointment, and the strategic review by the new CEO and restructuring expert, Ulrich Koerner, which failed to win over investors, added to the bank’s problems.
The bank’s image was further tarnished when an unfounded rumor about the bank’s impending failure in the fall caused customers to pull out their funds. Credit Suisse confirmed that it suffered its biggest annual loss since the 2008 financial crisis earlier this year and announced significant layoffs in recent months. In December, Credit Suisse raised 4 billion Swiss francs from investors.
On top of these issues, the bank’s largest shareholder, Saudi National Bank, announced recently that it could not provide additional funds due to regulatory restrictions. This announcement caused investors to worry about the bank’s ability to make money and the possibility of having to ask shareholders for more funds.
Consequently, investors scrambled to protect themselves against a possible Credit Suisse default, causing the bank’s shares to plummet by 24% in a single day. The Swiss central bank intervened to offer Credit Suisse a $54 billion lifeline to shore up its liquidity, lifting the bank’s stock price, and boosting other European banks’ shares.
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Conclusion
In conclusion, Credit Suisse’s collapse was due to various factors, such as scandals, management changes, multi-billion dollar losses, and a lackluster strategy. The unfounded rumor about the bank’s impending failure, combined with the announcement by its largest shareholder, Saudi National Bank, caused investors to lose confidence in the bank’s ability to make money, triggering the bank’s decline.
