(This story has been republished from The Quint's archives in the context of reports that Credit Suisse aims to cut 9,000 jobs.)
Swiss bank Credit Suisse saw a 12 percent drop in share prices on Monday, 3 October, before picking up at the end of the day, after a weekend of speculation and scrutiny about the bank's financial health.
The past three years have not been kind to Europe's second-largest bank. Several and frequent changes in the bank's top leadership, risk management failures on a billion-dollar scale, and a string of losses has led to investors putting the massive lender under microscopic scrutiny.
Why should all of this matter to you? Well, because Credit Suisse is considered a "global systemically important bank". Which means its failure could trigger a global financial crisis.
How did Credit Suisse get here? What led one of Switzerland's largest banks to a situation where its financial future and existence have come under heavy speculation?
And what will happen to Credit Suisse next? Let's find out.
Explained | Swiss Bank Credit Suisse to Cut 9,000 Jobs - How Did It Get Here?
1. The History of Credit Suisse
Credit Suisse Group AG was founded in 1856 to fund the Swiss Railways network. It has been instrumental in shaping the landscape of Switzerland over the years by giving loans for the development of both Switzerland and Europe's railway systems and electrical grid.
It began personal banking and retail banking operations in the 20th century, and to this day, it remains one of the largest banks in Europe.
In the 1980s and 1990s, Credit Suisse merged with First Boston to create Credit Suisse First Boston, which was its investment banking division till 2006.
At the end of 2021, Credit Suisse reported over 1.6 trillion Swiss francs in assets and over 50,000 employees in the institution.
Credit Suisse has a domestic Swiss bank plus wealth management, investment banking, and asset management operations.
The Swiss National Bank has designated it one of Switzerland’s global systemically important banks, whose failure would cause “significant harm to the Swiss economy and financial system."
Expand2. What Has Led to Credit Suisse's Recent Troubles?
Several factors have worked in tandem to lead to heightened investor scrutiny of Credit Suisse's financial future.
"Credit Suisse has been going through a bad patch since last year," an industry source told The Quint. "They've suffered major losses from the Archegos Capital incident," the source added.
The Archegos Capital scandal was unearthed in March 2021, when Archegos Capital, a US-based Hedge Fund defrauded several banks including Credit Suisse, Nomura, Mitsubishi UFJ Financial Group, and Deutsche Bank.
In short, the fraud, allegedly led by investor Bill Hwang, led to losses to Credit Suisse to the tune of $4.7 billion as well as the removal of two of the bank's top executives.
An independent audit authorised by the bank's board also found that it had failed to manage risk efficiently.
But Credit Suisse's troubles and investor fears can be traced even further back.
Expand3. A Brief Look At Credit Suisse's Troubles
In 2019, the Chief Operating Officer, Pierre-Olivier Bouée was discovered to have hired private investigators to spy on high level employees and was fired shortly after. The private investigator also mysteriously "took his own life," the bank reported, while announcing Bouée's removal.
In March 2021, a month before the Archegos scandal became public, Credit Suisse also announced that it was closing and liquidating several investor funds, worth $10 billion, provided to another financial services company, Greensill capital. Greensill declared insolvency in March 2021.
Investors reportedly lost close to $3 billion because of this.
In February 2022, a massive leak of over 30,000 of Credit Suisse's clients revealed over $100 billion in wealth held by people who had profited from "torture, drug trafficking, money laundering, corruption and other serious crimes," according to The Guardian.
This revelation also hurt the bank's reputability further, amplifying investor concerns.
The bank has also changed top leadership multiple times since 2019, with the most recent changes coming in July 2022, with the group getting a new CEO.
The group's Chairman Axel Lehmann only took over from previous chairman Antonio Horta-Osorio in January 2022, after Horta-Osorio resigned for breaking quarantine rules during the pandemic.
Expand4. What Next for Credit Suisse?
In its most recent earnings call, which is a teleconference or webcast in which a public company discusses its financial results from a reporting period, Credit Suisse said that its goal was "to become a stronger, simpler, and more efficient bank with sustainable returns."
To this end, Credit Suisse has said it will aim to become more focused on delivering sustainable returns to its stakeholders while lowering its absolute cost base.
In short, this means it'll try to reduce its costs while ensuring that its investors don't suffer any more losses of a similar scale. But despite the reassurances, speculation and concerns about the bank's future have led to the present situation, ie, heightened investor scrutiny of their finances.
On Friday, 30 September, the bank's CEO, Ulrich Koerner reassured investors and assured a turnaround strategy in 100 days, but this came even as the investor cost to insure the bank against defaults climbed by 15 percent. This is the highest it's been since 2009.
In fact, the crash in share prices on Monday, 3 October, came the weekend immediately after Koerner issued the statement of reassurance. According to Fortune, the bank's shares have lost about 60 percent just in 2022 alone.
An update is expected when Credit Suisse's next quarterly report is released on 27 October.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)
Expand
The History of Credit Suisse
Credit Suisse Group AG was founded in 1856 to fund the Swiss Railways network. It has been instrumental in shaping the landscape of Switzerland over the years by giving loans for the development of both Switzerland and Europe's railway systems and electrical grid.
It began personal banking and retail banking operations in the 20th century, and to this day, it remains one of the largest banks in Europe.
In the 1980s and 1990s, Credit Suisse merged with First Boston to create Credit Suisse First Boston, which was its investment banking division till 2006.
At the end of 2021, Credit Suisse reported over 1.6 trillion Swiss francs in assets and over 50,000 employees in the institution.
Credit Suisse has a domestic Swiss bank plus wealth management, investment banking, and asset management operations.
The Swiss National Bank has designated it one of Switzerland’s global systemically important banks, whose failure would cause “significant harm to the Swiss economy and financial system."
What Has Led to Credit Suisse's Recent Troubles?
Several factors have worked in tandem to lead to heightened investor scrutiny of Credit Suisse's financial future.
"Credit Suisse has been going through a bad patch since last year," an industry source told The Quint. "They've suffered major losses from the Archegos Capital incident," the source added.
The Archegos Capital scandal was unearthed in March 2021, when Archegos Capital, a US-based Hedge Fund defrauded several banks including Credit Suisse, Nomura, Mitsubishi UFJ Financial Group, and Deutsche Bank.
In short, the fraud, allegedly led by investor Bill Hwang, led to losses to Credit Suisse to the tune of $4.7 billion as well as the removal of two of the bank's top executives.
An independent audit authorised by the bank's board also found that it had failed to manage risk efficiently.
But Credit Suisse's troubles and investor fears can be traced even further back.
A Brief Look At Credit Suisse's Troubles
In 2019, the Chief Operating Officer, Pierre-Olivier Bouée was discovered to have hired private investigators to spy on high level employees and was fired shortly after. The private investigator also mysteriously "took his own life," the bank reported, while announcing Bouée's removal.
In March 2021, a month before the Archegos scandal became public, Credit Suisse also announced that it was closing and liquidating several investor funds, worth $10 billion, provided to another financial services company, Greensill capital. Greensill declared insolvency in March 2021.
Investors reportedly lost close to $3 billion because of this.
In February 2022, a massive leak of over 30,000 of Credit Suisse's clients revealed over $100 billion in wealth held by people who had profited from "torture, drug trafficking, money laundering, corruption and other serious crimes," according to The Guardian.
This revelation also hurt the bank's reputability further, amplifying investor concerns.
The bank has also changed top leadership multiple times since 2019, with the most recent changes coming in July 2022, with the group getting a new CEO.
The group's Chairman Axel Lehmann only took over from previous chairman Antonio Horta-Osorio in January 2022, after Horta-Osorio resigned for breaking quarantine rules during the pandemic.
What Next for Credit Suisse?
In its most recent earnings call, which is a teleconference or webcast in which a public company discusses its financial results from a reporting period, Credit Suisse said that its goal was "to become a stronger, simpler, and more efficient bank with sustainable returns."
To this end, Credit Suisse has said it will aim to become more focused on delivering sustainable returns to its stakeholders while lowering its absolute cost base.
In short, this means it'll try to reduce its costs while ensuring that its investors don't suffer any more losses of a similar scale. But despite the reassurances, speculation and concerns about the bank's future have led to the present situation, ie, heightened investor scrutiny of their finances.
On Friday, 30 September, the bank's CEO, Ulrich Koerner reassured investors and assured a turnaround strategy in 100 days, but this came even as the investor cost to insure the bank against defaults climbed by 15 percent. This is the highest it's been since 2009.
In fact, the crash in share prices on Monday, 3 October, came the weekend immediately after Koerner issued the statement of reassurance. According to Fortune, the bank's shares have lost about 60 percent just in 2022 alone.
An update is expected when Credit Suisse's next quarterly report is released on 27 October.
(At The Quint, we are answerable only to our audience. Play an active role in shaping our journalism by becoming a member. Because the truth is worth it.)