Banking is a relationship business. But crisis-ridden Credit Suisse finds itself surrounded by partners who are reluctant to stand by it and, in the worst-case scenario, become dangerous, finews.com observes.
1. Ammar Al Khudairy's Promise
Last fall, the Saudi National Bank (SNB) was seen as a savior in a time of need. The state bank from the Middle East promised Credit Suisse it would finance the turnaround of the Swiss bank with 1.5 billion francs.
On Wednesday, however, the largest shareholder gave the institution another potent headache. The bank's shares fell by 30 percent and had to be temporarily suspended from trading on statements by SNB President Ammar Al Khudairy.
Strictly speaking, Al Khudairy merely repeated what he said after joining the bank last year that the SNB would not acquire any more shares in the Swiss institution. But in the current environment, the statement proved incendiary.
The only thing that spoke for the Middle Eastern owner at Credit Suisse was its deep pockets. The SNB president has now destroyed this benevolence with his statement during a critical time for the bank. Like the Qataris, who waved through every scandal at Credit Suisse, the Saudis are now proving to be a liability for the bank.
2. Hat in Hand to Bern
The Swiss National Bank (SNB) provided Credit Suisse with 50 billion Swiss francs ($54.2 billion) in short-term liquidity, plus 39 billion francs in the form of bonds. This is no mean feat and should be enough to keep speculators and short sellers (see point 3) away from the bank's securities.
The fact this assurance came only after the massive selloff in Credit Suisse stocks Wednesday, triggering a selloff of bank stocks around the world and putting authorities in the US and Europe on notice, speaks volumes about the relationship between Credit Suisse's headquarters in Zurich and the institutions in Bern. This is despite the fact the federal government and supervisory authorities there must be very interested in an intact financial center.
The institute most certainly has gambled away a lot of goodwill with a long series of scandals. Accordingly, it is not surprising that positions have hardened in recent years. The Swiss Financial Market Supervisory Authority (Finma) imposed a partial risk freeze on the bank following the Archegos debacle in 2021, from which the institution's investment banking operations never fully recovered.
Likewise, Finma is working through the various home-grown financial debacles at Credit Suisse with a stern hand. The authority only recently reached a verdict on Credit Suisse's Greensill funds.
The Federal Department of Finance (FDF) also prefers to work behind the scenes, although it has been rumored for some time that Credit Suisse's case is being dealt with aggressively. In December, then-finance minister Ueli Maurer was heard saying the bank should be «left alone for a while.»
Silence also seems to be golden at the FDF under new finance minister Karin Keller-Sutter. The department declined a request from finews.com for comment, and that it would not say anything beyond the statement from Finma and the SNB «for the time being». The relief in Bern is likely to be palpable that the bank didn't have to be propped up with taxpayer money.
3. Clients and Profiteers
To be sure, the plunge in the share price is not solely attributable to Al Khudairy. On the financial markets, various large bets are likely to go against the bank. As «Reuters» reported Wednesday, short positions on European bank stocks were $16 billion. Explicitly mentioned were shares of Credit Suisse, Deutsche Bank, and BNP Paribas with the highest downward bets.
Credit Suisse had once been a big player in prime brokerage services for financial investors. After billion-dollar losses with the US financial firm Archegos at the beginning of 2021, Credit Suisse had to say goodbye to its business with hedge funds and other institutions.
In November of that year, the Swiss reached an agreement with French competitor BNP Paribas to transfer its clients. It's quite possible this clientele also included the profiteers of the current price crash.
4. Hungry Private Equity Giants
Financial investors also include partners helping Credit Suisse restructure its investment bank and reduce balance sheet risks. American private equity giant Apollo Global Management wants to buy large parts of the Swiss bank's US business with securitized loans (SPG). According to the bank, the first part of the transaction was successfully concluded in February.
But Apollo and rival Blackstone are among those interested in the books of the defunct Silicon Valley Bank. According to the «Financial Times» (behind paywall), Apollo could be interested in acquiring the lending business of the bankrupt California bankrupt.
This shows how private equity firms grab favorable opportunities when they come along. If it came to the point that Credit Suisse had to be broken up, Apollo and others could join the line of buyers.
5. Self-Absorbed Banking Lobby
The Swiss Bankers Association has hardly made a public effort on behalf of Credit Suisse which is astonishing since the bank is represented there by its Chairman Axel Lehmann on the Board of Directors.
Together with UBS, they are the single most important contributor. After the financial crisis, tax dispute, and years of internal trench warfare, the banking lobby has only a fraction of its former power left. It is now preoccupied after the departure of former director Joerg Gasser.
6. Frightened Base
Calling bank clients friends is a bit daring, especially as false friends. Nevertheless, Credit Suisse Switzerland CEO André Helfenstein described his clientele in its home market on Wednesday as a long-standing, loyal group, characteristics that also befit friends.
But even in what has been a relatively stable Swiss business to date, outflows of assets are continuing. The recently published annual report shows savings deposits booked in Switzerland amounting to 18 billion francs migrating elsewhere last year. Even this pillar of the business can no longer be fully relied upon.
