Credit Suisse Failure and Other Market Info.

Credit Suisse bank was one of the most pioneer banking institutions in the world. It was among the top 30 banks in global records. The 166 year run of the bank ended with many scandals and mistrust situations, change in leadership etc. All such reasons are the pillars for the failure of Credit Suisse. 

Reasons Behind the Fall of Credit Suisse Bank

One of the major reasons that has been the key factor to the fall of the bank is the constant change in management and leadership. The bank has been witnessing a constant change and this is the reason for the improper decisions which have caused the stocks of the firm to tumble by more than 95% as compared to before the financial crisis. 

The problems for the bank started in the 1990s when the then CEO Rainer Gut saw an opportunity to take control of First Boston for backstopping bad loans and capital injunction. The First Boston company was involved in the high yield debt markets and lent money to fund risky transactions of buyout. The entire industry faced criticism when the 457 million Dollar loan of Ohio Mattress Co. turned out problematic. This went down in the history of Wall Street as the burning bed incident. 

In 1997 Lukas Muehlemann, the new CEO, bought Winterthur Insurance Co. Later on in 2000 Credit Suisse also acquired Donaldson, Lufkin and Jenrette Inc. However the deal went as a failure as major clients of Donaldson, Lufkin and Jenrette Inc. left the firm and went to the rivals. Thus Winterthur Insurance Co. was sold in 2006 later by the new CEO Oswald Gruebel.

Other Reason

The frauds happening at Credit Suisse also played their part in the bank’s turmoil. In 2015 a private banker’s fraud was exposed as he had no clients and banking experience before joining Credit Suisse. In the 2008 crisis a Frenchman, Patrice, started moving money from Wealthy accounts to other client accounts to cover up their losses. He cut out the signature of the Wealthy People and then pasted it on trade orders. The man was convicted for fraud in 2018. 

Then later in 2019 the company’s reputation was hampered when the CEO Tidjane Thiam and an official of the Credit Suisse Iqbal Khan were shattering the bank’s culture at a dinner party due to the power tension between them. Khan later on moved to UBS and then the bank kept an eye on his activities which were then suspected and taken to the public. This forced CEO Tidjane out of the company. Later on following the Khan incident five other cases also got revealed between the year 2016 and 2019.

In 2021 the trading desk of Credit Suisse informed the management that their biggest client lost a huge amount of money and won’t be able to pay 2 billion dollars for the same. Archegos Capital Management settled other lenders’ bets on behalf of Bill Hwang and when the bank came to know about it the exposure was already close to 4.7 Billion Dollars. This was the reason for the recent drought of liquidity in the bank and its concern to raise additional capital. 

In the end when the bank went out to get funds the lenders declined the offer and hence the bank failed in the financial history.

UBS Deal

The UBS Group agreed to buy the Credit Suisse shares at 3.25 Billion dollars. This was an all shares deal and also less than the market value of the firm. 

Market Effects

The Indian and world markets were affected by this tragic fall. The US markets ended low on the day of the news announcements and the next week’s opening has been tragic for the markets. The Indian indices are trading low and the Nifty50 has even gone below 17000 levels for one time. The Bank nifty is already trading around the 39000 points level and the markets are witnessing a strong sell off whenever the indices go below their support levels. 

The Indian markets are not supporting the upward movement and one can also notice that post the Adani report the markets were trying to get back on their feet at a slower pace. However this was hit again by the banking failures. Previously three banks including Silicon Valley Bank and Signature Bank failed. Post that the news of Credit Suisse bank surfaced. 

This has brought a serious concern to the retail investors that whether the financial system is strong enough to bear the burden of the current market situation. The bank failures point out that the regulators need to step in and fix the financial situation. If the situation persists for a longer time the markets can witness an extreme loss in the near term which is not affordable by anyone at this point of time.