The social media storm that cost Credit Suisse billions in assets could happen again. Swiss banks are largely on their own when dealing with such cases. finews.com looks at what an effective defense might look like.
«I'm glad we've left that behind us,» Axel Lehmann told Swiss television «SRF» in December. Credit Suisse's chairman was referring to the social media storm that engulfed the Swiss bank in October and played a major role in draining nearly 85 billion Swiss francs from the bank by November.
It is too early to breathe a sigh of relief just yet. First, it is not clear how many Credit Suisse customers withdrew their money since then and how much the shock of the fall is still lingering. Observers warn this case is unlikely to be an isolated one.
No Rationale
What happened with Credit Suisse is proof that the financial industry is entering 2023 with a new risk. It shows how much value can be destroyed by social media within a very short time, says Clarissa Haller. For the senior partner at PR firm Dynamics Group, such a phenomenon can happen at any time, and the example of Credit Suisse «should be seen as a wake-up call.»
Research shows there are no regulations on how financial firms should go about weathering such a storm. At Credit Suisse and elsewhere, there is a degree of helplessness in the face of the new danger. In a TV interview, Lehmann said that when a social media storm hits, people are almost unsusceptible to rational arguments.
Meddling Bots
Whether the bank's management will be excused for those events in October remains to be seen. At that time, rumors of a capital increase, a leaked internal letter from CEO Ulrich Koerner, and references to the high prices of credit insurance on Credit Suisse bonds ensured a major social media event.
Hundreds of thousands of posts predicting the bank's imminent demise made the rounds even though that was, rationally, not the case. The situation was exacerbated as bots got involved, adding to the clamor.
Powerful Asian Platforms
Likely, social media activity about the bank was routinely recorded and quickly noticed and relevant departments were notified. The bank's reaction was a conventional one, with reports that it contacted institutional clients over the weekend in an effort to regain the narrative through traditional media.
Despite those efforts, throughout October and into mid-November, wealthy individuals withdrew assets from the bank and parked them at other institutions. Internally, this was seen as a consequence of the social media storm. In particular wealthy clients in Asia, a region where social media such as WeChat are particularly influential, yanked their assets out of Credit Suisse.
Liquidity in View
The fact that this storm came about without any basis remains a matter of concern at the bank today. All the more so because the resulting outflows were so severe the group had to resort to liquidity buffers for certain units putting Credit Suisse on the radar of the Swiss Financial Market Supervisory Authority (Finma), which monitors such measures.
From a supervisory perspective, liquidity is one of three pillars of a functioning bank alongside capitalization and the guarantee of proper business operations. «It is part of the usual supervisory activity to regularly exchange views with supervised parties on the liquidity situation and liquidity management,» Finma told finews.com upon request. If Finma identifies particular risks in this area, it demands countermeasures from the institutions.
Communications Battle
There are, however, no guidelines from the supervisory authority on how banks should prevent potential liquidity risks. At the same time, Finma says that it is up to market participants to defend their own reputation, which means that financial firms are essentially on their own in the fight against potentially harmful social media posts.
Communications departments are finding themselves on the front lines, but the importance of social media must also be understood by senior management. From a corporate perspective, social media and online platforms need to be taken just as seriously as traditional media, Haller says. Her experience in the field includes heading Credit Suisse's communications department for a year and a half until the end of 2015, as well as stints at industrial groups ABB and Siemens. Dynamics has no mandate from Credit Suisse.
Listening Not Broadcasting
According to Haller, companies need to build up the capacity to deal with these situations. «You need people within the company or externally who understand how these new channels work,» she says. Under no circumstances should the task be delegated to the younger people in the company just because they are considered to have a flair for social media. A real-time monitoring system should be set up to track activities on various channels, not only for quantity but also for content to enable a timely response.
Haller notes that social media is used by many companies as an additional PR sales channel, but instead of primarily broadcasting, companies should learn to listen. The key, she says, is to understand the discussions, connect with opinion leaders, and then create posts relevant to that environment. «In an emergency, it is the best way for a company to have the credibility and leverage to face a social media storm,» Haller says.
Who is Listening?
Other PR professionals also agree that a bank sends signals on numerous levels and channels, interacting with each other. In October, Credit Suisse bought back its bonds in the face of the social media storm, sending a signal it is still liquid. Investment professionals understood the message immediately but only a limited amount of wealth management's rich private clients did so.
This shows how important advisors' direct communication with individual clients is as they are the first to dispel social media rumors. The fact this has been only partially successful at Credit Suisse speaks volumes.
Important Brand Ambassadors
At a bank, the client advisors are the most important ambassadors of the brand, creating trust with the client, as Haller explains. To do this, however, the company's strategy must be made understandable to their needs, which is a central task not only to internal communications but also to management.
As Lehmann told «SRF,» the bank contacted some 8,000 major clients worldwide and 24,000 clients in Switzerland since announcing its new strategy in the fall, another Herculean task for the front office. The risk they are weary of defending themselves against accusations from outside after years of scandals is another potential risk for the bank.
