The Downfall of Credit Suisse
In 2021, Credit Suisse faced a substantial setback, incurring a loss of $5.5 billion due to its connection to the collapse of Archegos Capital Management. This led to the obliteration of five years' worth of investment banking profits, highlighting its risk management practices' total and complete failure. This was not an isolated incident, as Credit Suisse had a history of showcasing embarrassing risk management practices and empty promises.
In 2022, the bank announced that its financial reporting was subject to material weaknesses in internal reporting processes for 2022 and 2021, further eroding investor confidence. The head of Saudi National Bank, the biggest shareholder, chose not to invest more in Credit Suisse due to regulations, sparking liquidity fears alongside European bank instability. This prompted the US Treasury Department to say it was closely monitoring the Credit Suisse situation.
As a result, Credit Suisse saw customer withdrawals of more than 110 billion Swiss francs in the fourth quarter, leading to a significant decline in the bank's valuation. The bank had to utilise liquidity buffers to address the consequences of these withdrawals and acknowledged that these circumstances have exacerbated and may continue to exacerbate liquidity risks.
The Swiss National Bank Steps In
In an effort to stabilise the situation, the Swiss National Bank swooped in and offered to lend Credit Suisse up to 50 billion Swiss Francs ($53.7 billion) to address the liquidity crisis. However, this was not enough to restore investor confidence and prevent further outflows of client funds.
In March 2022, the Swiss government indicated it wanted to set up a public liquidity backstop for banks to provide state-guaranteed cash should one of the country's big banks fail. The proposed backstop would allow the Swiss National Bank to provide funds to any systemically important bank in the event of a failure in the form of a state-guaranteed loan.
However, the Swiss central bank recorded a historic loss of 132.5 billion francs ($141.54 billion), echoing Credit Suisse's reckless risk management skills over the years. This illustrates the flawed system of socialised losses and privatised profits in today's version of capitalism.
The Future of Credit Suisse
Despite these challenges, Credit Suisse has announced a radical restructuring plan, including shrinking its investment bank and raising $4 billion in capital from investors. This includes the Saudi National Bank, which would make them a 10% owner of the company and the largest shareholder.
The bank also confirmed in its annual letter that it is taking significant steps to address the weaknesses in its internal reporting processes and risk management practices.
In addition, the Swiss government's proposed liquidity backstop for banks provides a safety net for the banking sector, which could potentially restore investor confidence in Credit Suisse.
Credit Suisse's recent challenges highlight the importance of proper risk management practices in the banking sector. The bank's struggles have had a significant impact on investor confidence, leading to outflows of client funds and a decline in the bank's valuation. We are done with bailing them out with our tax money, we now see the ponzi scheme for what it is, in Gold/The Dinar we trust.