Having a Swiss bank is seen as a prestige – it says that you have arrived.
It also suggests that you have enough wealth so much so that you don’t want others to know about it and Swiss banks can help because they are sworn into bank-client confidentiality.
Among the Swiss banks, Credit Suisse and UBS are the largest, accounting for more than 50% of total deposits in the country.
Recently, Credit Suisse got on the wrong side of publicity and was rumored to be at the brink of bankruptcy.
This is big news as Credit Suisse was recognized as a systematically important financial institution, or in other words “too big to fail.”
It started off with a memo from its CEO, Ulrich Koerner. A discomforting phrase saying Credit Suisse was facing a “critical moment”.
The memo was leaked and that phrase spooked the markets.
The Credit Default Swap (CDS) shot up 15% to a level last seen during the Great Financial Crisis. This basically means that the chance of Credit Suisse defaulting on its debts has increased.
The memo was probably just the spark. The tinder of troubles in Credit Suisse has been accumulated over the years.
Here are some misdoings in the bank:
– Manipulated forex rates in 2013
– Conspired with Americans to file false tax returns in 2014
– Involved in 1Malaysia Development Berhad (1MDB) scandal in 2015
– Benefitted and enabled loans that were embezzled by Mozambican officials in 2017
– Enabled money laundering by a Bulgarian drug gang in 2022
It would even be hard to imagine what they could do behind the facade.
All these misdoings meant a Credit Suisse shareholder has lost 77% after holding the stock for 10 years.
Credit Suisse’s perpetual securities yield have also climbed to 8-10% with rating agencies last downgraded them in August. But still, they are considered investment grade status even though the yields suggested junk.
Is Credit Suisse going bankrupt?
We doubt for now.
Credit Suisse capital adequacy ratio is still above requirements – international regulatory minimum ratio was 8%, while Swiss authorities required a higher level of about 10%, and Credit Swiss is at 13.5%. There is enough buffer.
Should this be an opportunity to buy the shares or perpetuals?
We wouldn’t too. There are other banks in better shape, why go for a troubled one? The best way to prevent problems is to avoid them in the first place.
