Credit Suisse, one of the world’s largest banking institutions, has been rocked by a series of scandals in recent years that has caused its share price to plummet and its clients to withdraw funds. These scandals include a $5.5 billion loss from the collapse of the hedge fund Archegos Capital, the collapse of $ 10 billion in funds invested by Credit Suisse clients in loans brokered by the disgraced Australian financier Lex Greensill, and a “tuna bond” scandal linked to loans to Mozambique. To make matters worse, its CEO resigned in February 2020 following a corporate espionage scandal, while its chairman left in January 2022 after it was determined he had broken travel rules in lockdown. U.S. Department of State is Authorities are also investigating how the bank allegedly helped clients avoid taxes, and the bank admitted to “material weaknesses” in internal controls over its financial reporting from the previous two years.
In light of the bank’s financial crisis, its largest shareholder Saudi National Bank said it would not invest more in the Swiss banking giant and the bank is reportedly seeking a “public show of support” from the Swiss National Bank and Swiss regulator Finma. The situation has caused a selloff in the US stock market, with Dow Jones Industrial Average, S&P 500 and Nasdaq all down more than 1%, and Credit Suisse customers have yanked $120 billion of assets in the fourth quarter of last year and this year. The cost of insuring Credit Suisse debt against default has also risen and U.S. Federal officials are trying to evaluate the extent to which U.S. Banks may be vulnerable to a decline in Credit Suisse’s value.
The US Treasury is monitoring the situation and the SEC and the Justice Dept is. Investigations have been launched into the collapse of Silicon Valley Bank. In order to stave off a broader panic, the U.S. Authorities stepped in to assure depositors at the failed banks they would be made whole. Credit Suisse has been attempting to restructure its business for months now, aiming to scale back its investment banking business and moving the money to global wealth management. Market experts are worried that Credit Suisse may require a bailout, similar to the failure of Silicon Valley Bank, and that may cause a chain reaction that could cripple other struggling firms. *
The Fed and bank regulators are reportedly considering stricter rules and oversight for midsize banks in the wake of SVB's collapse as billionaire investor Ray Dalio warned that SVB's collapse could be a “canary in the coal mine” scenario that could hurt the venture capital world and beyond. Regulators now need to take action to prevent further losses, and dismantling the bank in an orderly manner may be the only solution. Bond and equity holders would be wiped out, however depositors and the bank’s clients would be relatively unscathed, reducing the risk of contagion and limiting the cost of the rescue.