Credit Suisse’s near-death experience

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Finma President Marlene Amstad has a dramatic talent. When she appeared before the media with its director Urban Angehrn on Wednesday, she described the downfall of Credit Suisse in the style of a classic Greek tragedy. He divided the bank’s recent history into three acts: “The situation worsened several years before October 2022, then since October, and finally this March.”

Amstad explained that Credit Suisse has repeatedly been the subject of negative headlines in recent years. This accumulation of events and scandals “seriously damaged” the reputation of the big bank. In the summer of last year, the bank launched a comprehensive strategic realignment of the investment bank. Finma welcomed this step. “Because it was going in the right direction – towards risk reduction.”

“At the beginning of October 2022, the second phase began – another major phase of loss of confidence,” Amstad said. The market’s business model and future outlook “swayed”. The share price fell and CDS “up”. CDS are derivatives that investors use to protect themselves against the default of a bond.

Act 2: Bank Run

In this second act, CS had a bank run. “The bank has recorded outflows of client funds on a scale globally and historically unparalleled,” the chairman said. Finma has ordered CS to increase its liquidity buffer in the summer of 2020.

“Credit Suisse was only able to survive the October 2022 bank rush thanks to this precautionary, additional liquidity buffer,” said Finma President. In other words, if the bank had not created the additional buffer, it would have gone bankrupt in October.

A closer look at the numbers shows customers withdrawing money from the big bank as early as July, August and September. According to the third quarter report, it was 12.5 billion francs. Even then, there were new major losses in connection with the restructuring and speculation that a capital increase was needed, making shareholders and customers uneasy.

In early October, exits accelerated significantly. Rumors arose that the bank would soon go bankrupt. Within days, customers withdrew 85 billion francs. By the end of the year, customers had transferred a total of CHF 130 billion in deposits.

A mystery to the end

The bank remained silent as customers withdraw the money en masse. There was no public comment for several weeks. Group CEO Ulrich Körner said in a speech at the CS General Assembly this week that Credit Suisse was at the time tied up in “legal reasons to comment on these misrepresentations”. Bank experts doubt this. A bank can contact anytime and anywhere if there are valid reasons.

It has remained a mystery to this day why the bank did not resolutely oppose the rumors at the time.

Source :Blick