All is not well in the global banking system. After Silicon Valley Bank and Signature Bank collapsed in the United States, the onus is now shifted to Credit Suisse, the Swiss investment bank. Credit Suisse crisis sent shockwaves around the world last Wednesday after it was reported that the swiss investment bank's shares tanked up to 25 percent. After tensions crept into investors, Credit Suisse on Thursday announced that t will borrow up to $54 billion from Swiss National Bank, the central bank of Switzerland, to shore up liquidity. The announcement followed assurances from the Swiss authorities that Credit Suisse met "the capital and liquidity requirements imposed on systemically important banks," and it could access central bank liquidity if needed. However, it's share yet again tanked on Monday, after Switzerland-based bank UBS agreed to save another embattled Swiss lender Credit Suisse for $3.25 billion. For the unversed, the UBS-Credit Suisse takeover deal was inked after the country's regulators asked both companies to conclude the transaction for restoring necessary confidence and stability in the Swiss economy and the banking sector. Now, the question arises what led to the Credit Suisse crisis? Below is the Credit Suisse crisis explained in 5 points-
1) The Market Tumble
Credit Suisse Group AG shares nosedived to an all-time-low on March 15 after the swiss financial institution acknowledged 'material weaknesses' in its financial reporting processes that could lead to misstatements in its financial reports. Consequently, clients pulled billions from the bank. Among its material weaknesses are the lack of an effective risk management mechanism to locate misstatements in the bank's financial reports and a lack of effective oversight.
2) Back-to-Back scandals at Credit Suisse
Credit Suisse has been the spotlight of multiple scandals from past many years. Staring from 2019 to 2023, the financial institution has been shaken by many controversies. For instance, in 2019, Credit Suisse's then-Chief Operating Officer Pierre-Olivier Bouée was found to have hired private investigators to spy on senior employees eventually leading to them getting fired. While Bouée was removed after the scandal came to light, the private investigator 'took his own life'.
Then in March 2021, Credit Suisse announced it was closing and liquidating $10 billion worth of funds. Investors reportedly lost $3 billion because of this.
Then again on March 24, 2021, the Archegos scandal came to light. In one fell swoop, the Archegos Capital Investment firm lost $20 billion, sending banks and investors into a tizzy. Credit Suisse, often described as a problem child of the European financial market, was one of the worst affected.
In February 2022, a leak revealed that over 30,000 of Credit Suisse’s clients had amassed nearly $100 billion in wealth from “torture, drug trafficking, money laundering, corruption and other serious crimes”, Guardian reported.
3) Changing leadership
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The Swiss banking firm has changed its top leadership several times since 2019 and especially since 2022. In January 2022, Credit Suisse group chairman Antonio Horta-Osario resigned for breaking quarantine rules amid the COVID-19 pandemic. Axel Lehmann took over. In July 2022, the group got a new CEO.
4) Saudi pulls out its financial support
Amid the bank’s crisis, media reports say the Saudi National Bank has ruled out injecting more funds into Credit Suisse. Chairman of Saudi National Bank Ammar Al Khudairy said it would “absolutely not” be investing any more money in the beleaguered institution, not least for “regulatory and statutory reasons”.
How Credit Suisse can impact India?
Jefferies India report quoted analyst Prakhar Sharma, who said, "Given the relevance of Credit Suisse to India’s banking sector, we see softer adjustments in assessment of counter-party risks, especially in the derivative market."
"As the bank “has a major presence in India’s derivatives market,” Sharma is watching for any liquidity issues or counter-party risks that may result from the fallout. Overseas banks in India have 4% to 6% of assets, but a large 50% share of off-balance sheet liabilities, according to the note.
Credit Suisse owns more than 200 billion rupees ($2.4 billion) of assets in India, making it the 12th largest offshore lender, according to Jefferies. Loans form 73% of its total liabilities in the South Asian nation, with the majority of them of a short tenure, it added.