Credit Suisse is systemically important in Switzerland. Now, it is cutting thousands of jobs at home and allowing a bank backed by the Saudi regime to become a major shareholder. That «Switzerland Inc.», the federal government, and the authorities silently watch this development is something finews.com finds criminal.
Shortly after the news broke, a bon mot that the abbreviation «SKA» of the venerable Schweizerische Kreditanstalt (Swiss Credit Institute), the predecessor institution of Credit Suisse, now stands for «Saudische Kreditanstalt» (Saudi Credit Institute) quickly made the rounds this Thursday.
The entry of Saudi National Bank (SNB), owned by the Saudi kingdom, is one of the cornerstones of the new strategy that Credit Suisse CEO Ulrich Koerner presented along with the quarterly results. The SNB, (the Saudi version, not the Swiss National Bank) plans to provide Credit Suisse with 1.5 billion Swiss francs ($1.52 billion), allowing it to hold up to 9.9 percent of the bank.
That would make the Saudis by far the bank's largest shareholders, more so if the 4.93 percent stake held by Saudi conglomerate Olayan is added.
Timely Petrodollar Infusion
The petrodollars come just in time for Credit Suisse which reported its third-quarter hard equity ratio fell to just 12.6 percent after a staggering net loss of 4 billion francs. The regulatory minimum for Credit Suisse under «too big to fail» rules is 10 percent. Moreover, the restructuring of the bank will burn around 2.9 billion francs by 2024.
The outcome is crystal clear. Without the capital injection, which the Credit Suisse management believed it could do without at the beginning of the year, the future of Switzerland's second-largest bank is far more uncertain.
Watching the Misery
This prospect should alarm not only the federal government and the authorities but also the «Switzerland Inc.» business elite. After all, Credit Suisse is one of five banks relevant to the Swiss financial system and as such enjoys special attention. Moreover, it bills itself as the «entrepreneurial bank,» and local entrepreneurs emphasize there needs to be a large bank alternative to UBS.
But all of these institutions watched the misery at Credit Suisse unfold for months, and today they still keeping quiet. At least from the outside, the bank's new strategy is now taking place without their involvement.
Deafening Silence
At Credit Suisse, this has almost become a business model. The Swiss government and the Swiss National Bank (SNB) took steps to rescue UBS in 2008, as the financial crisis was brewing, but pressure was also exerted on Credit Suisse, which was also poorly financed at the time.
However, its financing was left to large investors, especially Olayan and the sovereign wealth fund of the Emirate of Qatar, QIA. As major shareholders, a QIA representative sat on the bank's board of directors for a time, these players played a highly passive role.
The upshot was that scandal after scandal was the order of the day as were numerous capital dilutions, while they profited from lucrative interest rates on Credit Suisse's mandatory convertible bonds. The woeful state of Credit Suisse today is due in no small part to the behavior of those major shareholders. It is doubtful the Saudi SNB will take a different view, so we can once again expect deafening silence from the major shareholders.
Poof! Swiss Jobs Gone
Switzerland will also have to foot the bill, or rather is already doing so. Swiss news agency «AWP» (in German only) was probably right in its estimate that around 2,000 of the 16,000 Credit Suisse jobs in Switzerland will be gone by 2025. This means that every eighth banker will be surplus to requirements. Likewise, Credit Suisse management has only shown how it intends to stabilize the bank which is surely a long way from being a liberating strategy. The stock market also sees it that way as well. Currently, Credit Suisse is trading at just under 4 francs, almost 15 percent below their value yesterday. Hardly a resounding seal of investor approval.
The solution to Credit Suisse's problems appears to be beyond reach, with Switzerland seemingly deciding from the outset it wants no part in it. Nowhere in today's strategic framework is there a link to the old SKA and the idea of a pure Swiss entrepreneurial bank, which in the run-up had its supporters even in the business establishment.
Despotic State
Like UBS, the bank could have obtained the turnaround capital more cheaply from the federal government and the Swiss National Bank than from the market, even if this idea is not compatible with liberal ideals.
With today's announcement, there is of course no longer any question of such theoretical considerations. Instead, we watch as an investor controlled by a despotic state rises to become the largest shareholder in a systemically important bank.
