SHockey Share-Issued Can drown banks. Silicon Valley Bank (svb‘S) disastrous attempt to raise capital Last week proved as much. on March 15 credit Suisse Found that even volatile shareholders can do a lot of damage. Saudi National Bank, the firm’s largest shareholder, is suffering a bad case of buyer’s remorse. When asked about any further investment in Credit Suisse, the bank’s chairman’s response was brusque: “Absolutely not, for a number of reasons outside the simple one, which is regulatory and statutory”.
Investors ran for cover. Credit Suisse’s share price fell by a quarter to its lowest ever, and other European banks took a beating. By the end of the day Swiss regulators had issued a statement saying that Credit Suisse had met capital and liquidity requirements applicable to large banks, but that the lender would offer liquidity support if necessary.
Investors are unlikely to lose everything. Yet they have plenty of reason to worry. Multibillion-dollar losses from Credit Suisse’s deal with Arcagos Capital, a family office that collapsed in 2021, and supply-chain-finance company Greensilk Capital, which suffered the same fate the same year, top the list. are near Last year, customers withdrew cash from every nook and corner of the bank. It was too much for a long-term shareholder: Harris Associates, an investment firm, sold the last of its shares.
The new owners haven’t been spared from the heartbreak. On 9 March Credit Suisse announced a delay in the publication of its annual report, due to a last-minute call from the Securities and Exchange Commission, the US’s main financial regulator. The relevant accounting issues are not major, but the admission of “material weaknesses” in the firm’s financial-reporting system does not suggest the kind of sophisticated internal processes that would reassure investors.
When shareholders finally received the report on March 14, it made for grim reading. Credit Suisse posts its fifth consecutive quarterly loss to end 2022. The SFr4bn ($4.3bn) increase at the end of last year repaired the bank’s common equity to risk-weighted assets ratio, a key indicator of a bank’s capital strength. This figure has increased from 12.6% at the end of September to 14.1%. But few expect it to hold steady as the bank begins an ambitious restructuring program as well as attempts to reverse an inconvenient outflow of customer cash.
The most immediate problem is to stop this flow of cash. Assets managed by the wealth-management division fell from nearly SFr740bn to just SFr540bn, as bankers failed to persuade ultra-rich clients to park money with Credit Suisse. Domestic Swiss banks, usually the cash cow of the business, found little relief. Total outflows of assets under management during the fourth quarter were 8%, forcing the bank to tap into its liquidity buffers.
Although Credit Suisse Chief Executive Ulrich Körner expects to reduce the lender’s cost base and restructure the investment bank, there could be more pain ahead. restructured investment bank, called C The first Boston will revolve around Michael Klein. Mr. Klein, who served on Credit Suisse’s board of directors until October 2022, is a dealmaking supremo, best known for sitting on both sides (“strategic advisor”) of the mega mining tie-up between Glencore and Xstrata in 2012. Are. In February Credit Suisse bought its boutique advisory shop for $175 million.
There are reasons to take seriously the intention to create a large boutique investment bank. Credit Suisse, which has long excelled at advising on corporate buy-outs, will finally recover after the 2022 frost. Giving senior managers equity in the business is a reasonable way to attract senior traders. But those preparing to jump this week may have decided to pause to assess the damage.
In the event of a catastrophic run, which still appears unlikely, some doubt the Swiss government will come to the rescue of half of the country’s beloved banking monopoly. An alternative would be a sale, perhaps to a better-behaved compatriot of Credit Suisse, UBS, But such a rescue mission would have a weak commercial rationale, and would involve considerable turbulence. As with Credit Suisse’s current plans, there will be no guarantee of success.