By taking ‘decisive measures’ to borrow up to $54 billion from the Swiss central bank, Credit Suisse, a major Swiss investment company, is exercising its option to maintain its liquidity and investor confidence. After the failures of Silicon Valley Bank (SVB) and Signature Bank, American businessman and author Robert Kiyosaki predicted that the Swiss investment powerhouse Credit Suisse will be the next bank to fail. The 167-year-old Swiss lender is currently in a mess that may be attributed to a spate of scandals over many years, changes in top management, multi-billion dollar losses, and a lacklustre strategy.
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Credit suisse: How important is it?
The bank is one of the biggest wealth managers in the world and, more importantly, it is one of the 30 banks that are globally systemically significant and whose failure would have an impact on the whole financial system. The business services clients in wealth management, corporate banking, and institutional asset management through operations in more than 50 nations. Due to its position in delivering finance and financial services to businesses, governments, and people all around the world, Credit Suisse is crucial to the financial sector. Investor mistrust in Credit Suisse might result from a material fall in its performance or reputation. This would have a ripple effect on other financial institutions and the world markets.
Archegos Capital management Scandal and Greensill Capital insolvency:
Losses brought on by the collapse of investment firm Archegos and Greensill Capital started the sell-off in Credit Suisse’s shares in 2021. Credit Suisse was one of the financial institutions that financed the collapse of the family office Archegos Capital in March 2021. Credit Suisse had a significant role in the March 2021 insolvency filing of supply chain financing business Greensill Capital. As a result of the bank’s suspension, Greensill suffered further losses and reputational harm.
The bank’s involvement in the 1MDB affair, a fraudulent plan involving the Malaysian state fund 1Malaysia Development Berhad, was one of the main problems. The bank has been charged billions of dollars for its role in the scandal and has been subjected to investigations by authorities around the world.
Changes in management:
Tidjane Thiam’s resignation as CEO of Credit Suisse in 2020 is only one of the numerous leadership transitions at the company. The bank was criticised for how it handled the Archegos and Greensill scandals, which prompted more demands for leadership changes.
Poor financial performance:
As compared to its competitors, Credit Suisse’s financial performance has been poor. The bank has failed to increase its earnings and sales in recent years, which has decreased the value of its stock. The benchmark bonds’ values dropped to levels that suggest the Swiss institution is under severe financial stress, which hasn’t been witnessed at a major international bank since the depths of the 2008 crisis. The stock dropped as much as 31% and reached record lows. In the meanwhile, banks that transact with Credit Suisse bought credit-default swaps contracts that will pay them if the situation worsens.
Credit Suisse has been facing a financial crisis due to multiple top management scandals and business failures. The crisis has highlighted the need for tougher rules and raised questions about the risk management procedures used by the banking sector. The reputation of the bank has been seriously damaged, and it is unclear how the firm will rebuild its status in the financial industry.