Credit Suisse Update: One of Europe’s largest banks, Credit Suisse has been rocked by two major scandals this year that have cost it billions of dollars and damaged its reputation. In March, the bank suffered huge losses from its exposure to Archegos Capital Management, a U.S.-based family office that collapsed after failing to meet margin calls from its lenders.
In April, the bank announced a “radical” restructuring plan that would see it raise $4 billion of capital, including $1.5 billion from the Saudi National Bank, which would become its largest shareholder.
The plan also involved scaling back its investment banking activities and focusing more on wealth management. But how did Credit Suisse end up in this situation? And what does it mean for its future? This is the inside story of Credit Suisse’s $54 billion lifeline from the Swiss National Bank amid twin scandals.
To start with, Credit Suisse, one of the largest banks in Switzerland and Europe, has secured an emergency loan of up to $54 billion from the Swiss National Bank (SNB) to cope with a liquidity crisis that has rattled global financial markets.
Credit Suisse takes decisive action for survival and calm investor fears
The bank announced on Thursday that it was taking “decisive action” to strengthen its liquidity position by exercising its option to borrow up to 50 billion Swiss francs ($54 billion) from the SNB’s emergency liquidity assistance facility.
The move came after Credit Suisse’s shares plunged by more than 20% in two days, following reports that it faced billions of dollars in losses from its exposure to Archegos Capital Management, a U.S.-based family office that collapsed last week after failing to meet margin calls from its lenders.
Credit Suisse was one of several banks that lent money to Archegos, which used complex derivatives to bet on stocks such as ViacomCBS, Discovery and Tencent Music. When those stocks plummeted last week, Archegos was unable to meet its obligations, triggering a fire sale of assets that wiped out its equity and left some of its lenders with heavy losses.
Credit Suisse said on Tuesday that it expected a “highly significant” impact on its first-quarter results from the Archegos debacle, but did not disclose the exact amount. Analysts have estimated that the bank could lose anywhere between $3 billion and $7 billion from the episode.
The Archegos blowup also compounded Credit Suisse’s woes from another scandal involving Greensill Capital, a British supply-chain finance firm that filed for insolvency earlier this month. Credit Suisse had invested $10 billion of its clients’ money in funds linked to Greensill, which specialized in lending money to companies based on their future invoices.
Credit Suisse said it had suspended and liquidated those funds amid concerns about Greensill’s creditworthiness and potential conflicts of interest involving its founder Lex Greensill. The bank said it was working with regulators and authorities to recover as much money as possible for its clients.
The twin crises have raised questions about Credit Suisse’s risk management practices and oversight, as well as its ability to withstand further shocks in an uncertain economic environment. The bank’s CEO Thomas Gottstein said he was launching a comprehensive review of both cases and would take appropriate measures to address any shortcomings.
“We are fully committed to addressing these situations,” Gottstein said in a statement. “Serious lessons will be learned.”
Regulators in Switzerland and other countries have also expressed concern about Credit Suisse’s situation and its implications for financial stability. The Swiss Financial Market Supervisory Authority (FINMA) said on Wednesday that it had opened enforcement proceedings against Credit Suisse over the Greensill case and was closely monitoring the Archegos case.
FINMA also sought to reassure investors that Credit Suisse had enough capital and liquidity buffers to absorb potential losses from both cases. It said it supported the bank’s decision to tap into the SNB’s emergency funding facility as a precautionary measure.
The SNB confirmed on Thursday that it had granted Credit Suisse access to its emergency liquidity assistance facility, which is designed for situations where banks face temporary liquidity shortages due to market disruptions or systemic events.
The SNB said it would provide Credit Suisse with up to 50 billion Swiss francs ($54 billion) in secured loans at an interest rate of 0.5% per annum. The loans would be collateralized by high-quality assets such as government bonds or cash deposits held at the SNB.
The SNB stressed that this facility was not a bailout or a rescue package for Credit Suisse, but rather a temporary measure aimed at ensuring financial stability and smooth functioning of money markets. It said it expected Credit Suisse to repay the loans as soon as possible once market conditions normalize.
“The provision of emergency liquidity assistance is part of our mandate as lender of last resort,” SNB Chairman Thomas Jordan said in a statement. “We are confident that this measure will help restore confidence in Credit Suisse and support its efforts to overcome this difficult situation.”
Credit Suisse said it appreciated the support from the SNB and FINMA, and reiterated its commitment to serving its clients and shareholders with integrity and professionalism.
“We are taking decisive steps …to address these matters which should serve us well for our future business activities,” Gottstein said. “We remain confident about our strategy.”
