An exceptional situation, an exceptional measure. After a long weekend of negotiations, the UBS bank announced on Sunday evening that it was going to take over Credit Suisse, which is in free fall on the markets and could cause a banking panic.
The transaction amounts to 3 billion Swiss francs, or just over 3.02 billion euros, payable in UBS shares. On Friday, the second largest bank was still worth a little over 7 billion Swiss francs...
This operation was almost forced by the Swiss authorities who organized a press conference to react. This solution "is not only decisive for Switzerland (...) but for the stability of the entire global financial system", assured the President of the Swiss Confederation, Alain Berset.
How did the situation get out of hand so quickly?
It all started on March 15. Credit Suisse's largest shareholder, Saudi National Bank, announced that it would not support the bank, which is suffering from investors' fears after the collapse of several American banks (Silvergate, Silicon Valley Bank...).
The Saudi government has made it clear that it is out of the question to go back into the pot and bail out a bank in which Riyadh already has a 10% stake. But the situation is perilous and Credit Suisse has therefore decided to borrow money to avoid any nationalization.
As a sign that the situation is being taken seriously, the other European banks have all fallen on the stock market.
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Credit Suisse executives on Tuesday acknowledged "substantial weaknesses" in the release of the annual report, which was delayed last week due to questions from the U.S. regulator (Credit Suisse also has a significant presence in the U.S.).
The document states that "deficiencies" have been reported in the implementation of a risk assessment process.
These weaknesses relate to the accounts for the years 2021 and 2022. Last year alone, the bank recorded a net loss of 7 billion Swiss francs (7 billion euros). These poor results helped trigger an exodus of clients, confirmed last year by management, although it did not consider it significant.
But what happened?
While Credit Suisse has been through a lot of turmoil in the 2010s (it has paid more than $15 billion in fines in the U.S. since the subprime crisis), it is recent events that have brought it to where it is today.
The origin of the problem can be traced mainly to the bankruptcy in March 2021 of the British financial company Greensill. Greensill provided short-term loans to companies using complex financial arrangements.
When Greensill lost the support of its major backers, Credit Suisse had $10 billion in funds tied up in the financial firm. According to Bloomberg, the bank's executives ignored internal warnings about the debt load of one of Greensill's major clients...
This affair was only the beginning of a series of other bad industrial choices, such as the investment in the American hedge fund Archegos, which was closed down a few days later.
Credit Suisse is said to have lost $5.4 billion in the story, according to a banking source, or 51% of its exposure.
This affair highlights a certain level of incompetence," says a former risk manager of one of the largest French banks. "Goldman Sachs was also involved in Archegos and did not incur any losses, and the same goes for Morgan Stanley, which did very well with 6.5% losses.
Closer to home, in October 2022, Credit Suisse was forced to reach agreements with U.S., British and Swiss authorities to extinguish charges related to suspicious loans to state-owned enterprises in Mozambique, which is at the center of a massive corruption case.
The bank agreed to pay $475 million in penalties and agreed with the British authorities to cancel $200 million in debt owed by Mozambique.
All these events forced the bank to raise the equivalent of 4 billion euros at the end of 2022. But this was not enough.
"What is happening at Credit Suisse did not happen overnight, it is very different from Lehman Brothers, whose bankruptcy was done in stupefaction in 2008," explains a banking source. "The big banks have known about the situation for a very long time and have had to reduce their exposure to Credit Suisse for several months," she adds.