Banks scramble over stricken Credit Suisse
Banks rush to hit Credit Suisse: Markets brace for fresh turmoil as Swiss lender bailed out for £45bn is mired in crisis
- Credit Suisse is trying to close a deal that can be announced before markets open
- More than £400 billion has been wiped from bank stocks following the collapse of Silicon Valley Bank
- Credit Suisse’s plight has also rocked the markets
Credit Suisse’s future was at stake last night as potential buyers circled the stricken Swiss lender.
During the biggest banking crisis since the 2008 crash, the Swiss central bank frantically tried to orchestrate a deal that could be announced before markets open tomorrow.
More than £400 billion was wiped from bank shares last week after the collapse of Silicon Valley Bank in the US spooked savers and investors.
But the plight of Credit Suisse, which employs about 5,000 bankers in London, has also rocked markets. Its shares hit new lows last week even after it was thrown off a £45 billion lifebuoy by Swiss authorities. The 167-year-old bank is now effectively up for sale, with larger Swiss rival UBS looking to make a bid that experts say could lead to the break-up of Switzerland’s second largest.
The Bank of England is also keeping a close eye on developments, as Credit Suisse is seen as a ‘systemically important’ bank, i.e. too big to fail. The collapse would send shockwaves through the financial system, experts warn.
Sign of the times: the plight of Credit Suisse, which employs around 5,000 bankers in London, has rocked markets
The only UK banks deemed too big to fail are HSBC, Barclays and Standard Chartered.
Swiss regulators told their US and UK counterparts on Friday that the collapse of Credit Suisse into UBS was ‘plan A’ to halt a collapse in investor confidence in Credit Suisse, the Financial Times reported.
Options other than a full takeover are also discussed. Analysts say a deal could see Credit Suisse sell its retail banking business to a local lender, although UBS – Switzerland’s largest bank – could be barred from buying it for competitive reasons.
The investment banking arm, which Credit Suisse is already planning to spin off as First Boston, is also up for grabs, but the asset management arm is seen as the most attractive to potential buyers.
Nouriel Roubini — nicknamed “Dr Doom” for predicting the 2008 financial crash — said the merger of Credit Suisse and UBS would create “a monster too big to fail” that would be twice the size of the Swiss economy. Breaking up Credit Suisse would “reduce systemic risk,” he added. Whatever form it takes, the Swiss central bank wants to announce a deal before markets open tomorrow to avoid further panic selling.
Frederique Carrier, head of investment strategy at RBC Wealth Management, said the lack of a quick deal could erode investor confidence and exacerbate market volatility.
In his budget last week, Chancellor Jeremy Hunt said rules put in place since the 2008 financial crisis mean the UK banking system remains ‘safe, sound and well capitalised’. He highlighted last week the sale of Silicon Valley Bank’s UK arm to HSBC, which had “protected customer deposits at no cost to the taxpayer.”
But critics rounded up SVBUK last night after Sky News reported it had paid out millions of pounds in employee bonuses just days after the bailout.
Credit Suisse is dogged by a series of scandals, multi-billion dollar losses and endless boardroom turmoil.
The bank took a £8bn hit in 2021 following the collapse of specialist finance firm Greensill Capital, where former Prime Minister David Cameron was an adviser.
It also lost £4.5bn when US investment fund Archegos went under, becoming the first Swiss company to be found guilty of a corporate crime after being found to have laundered for a Bulgarian drug cartel. Former Lloyds Bank boss Antonio Horta-Osorio was forced out as chairman last year after breaking Covid quarantine rules to watch the European Football Championship final at Wembley and the Wimbledon men’s tennis final on the same day.
Tidjane Thiam, former boss of Prudential, resigned as CEO of Credit Suisse in 2020 following a spy scandal and a highly publicized dispute with his neighbor – a banking subordinate – that shocked Swiss society.
US investment giant BlackRock — one of Credit Suisse’s largest clients — last night denied reports it is interested, saying it “is not participating in plans to take over all or part of Credit Suisse.” UBS, Credit Suisse, the Swiss National Bank and the Bank of England all declined to comment.
While many of Credit Suisse’s problems are self-inflicted, the roots of the latest crisis lie in the recent rapid rise in interest rates around the world to combat runaway inflation.