What’s happening with Credit Suisse? Inside the Swiss bank’s market tumult – National

Credit Suisse saw its stocks and bonds fall sharply on Monday as markets subjected the bank to intense scrutiny.

The Swiss bank has insisted its capital and liquidity are strong and said it will have more to say about a strategic overhaul when it releases third-quarter results on October 27.

Why is Credit Suisse in the spotlight?

A string of losses, high-profile risk management failures and changes at the top have drawn investor attention to Switzerland’s second largest bank.

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Credit Suisse has had to raise capital, halt share buybacks, cut its dividend and reshape management after losing more than $5 billion to the Archegos collapse in March 2021, when it also suspended client money related to failed financier Greensill had to.

A spy scandal forced then-CEO Tidjane Thiam to resign in 2020, and the Swiss financial regulator said Credit Suisse had misled them about the extent of its surveillance.

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His successor, Thomas Gottstein, stayed until July 2022, when Credit Suisse approached restructuring expert Ulrich Koerner as CEO, launching a second strategic review within a year to focus on its wealth management flagship and roll back investment banking.

Chairman Axel Lehmann took over in January from Antonio Horta-Osorio, who resigned less than nine months after joining for violating quarantine rules during the COVID-19 pandemic.

Horta-Osario’s predecessor, Urs Rohner, admitted when he left last year that this was not the first time the bank had disappointed customers and shareholders.

Credit Suisse’s losses totaled nearly 4 billion Swiss francs ($4 billion) in the last three quarters alone, while its funding costs have skyrocketed amid rating downgrades.

What options does it have?

Credit Suisse has said it wants to strengthen its wealth management business, return its investment bank to a “capital-poor, advice-led” business and review strategic options for its securitized products business.

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Analysts estimate it could face a capital shortfall of around CHF 4 billion to CHF 6 billion, depending on what it does to downsize its investment bank and how much it earns from selling assets to restructure to grow support and to have a safety cushion.

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“Asset sales will help, but CHF 4 billion is likely to come in the form of a highly dilutive capital raise. The good news is that some of this is already embedded in the stock price,” analysts at Keefe, Bruyette & Woods wrote in a note.

A targeted capital increase with a major shareholder could be an option.

As a last resort, Credit Suisse could apply for state aid.

How important is the bank?

Since its foundation in 1856, Credit Suisse has played a central role in the history and development of Switzerland. It was founded by Swiss politician and entrepreneur Alfred Escher to fund the country’s railways and support industrialization.

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Through a series of mergers and acquisitions, it has become the second largest lender in Switzerland and one of the largest banks in Europe.

At the end of 2021, the company had just over 50,000 employees and assets under management of 1.6 trillion Swiss francs (1.62 trillion US dollars).

Credit Suisse has a domestic Swiss bank as well as wealth management, investment banking and asset management.

The Swiss National Bank has classified it as one of Switzerland’s globally systemically important banks, whose failure “would cause significant damage to the Swiss economy and the financial system”.

How did the market react?

Credit Suisse shares are down more than 55 percent this year, while its euro-denominated bonds hit record lows on Monday.

Credit default swaps for Credit Suisse — instruments used to hedge lender liabilities — stood at 250 basis points (bps) on Monday — a sharp rise from the 57 bps earlier in the year.

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