A shaky share issue can sink any bank. US Silicon Valley Bank’s (SVB) initiative to raise capital has already proved disastrous. Credit Suisse Bank, one of the financial institutions of Switzerland, has gone bankrupt this time. Last March 15, the bank observed that fickle shareholders could do a lot of damage.
Saudi National Bank is the largest shareholder of this institution. After the Saudi National Bank refused to provide new funds, the company’s share price fell by 30 percent in one day on Wednesday.
The Economist reports that when asked about any further investment in Credit Suisse, the Saudi bank chairman’s response was not very positive.
Investors are rushing to withdraw money. Credit Suisse’s share price is at its lowest level and has fallen by a quarter. This situation is also knocking on the doors of other European banks. But Swiss regulators eventually released a statement saying Credit Suisse met capital and liquidity requirements applicable to large banks. However, they will provide assistance to the bank if necessary.
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Earlier on March 16, Credit Suisse said it would borrow $5.4 billion from the central bank to boost liquidity. As a result it recovered somewhat in its share price.
Investors have nothing to fear, says The Economist. Yet they have plenty of reason to be angry.
Credit Suisse’s dealings with Archegos Capital have led to heavy losses. It was a family firm that collapsed in 2021 and Greenseal Capital, a supply-chain-finance firm that collapsed in the same year. Last year, depositors started withdrawing cash from every branch of the bank. Long-time shareholder Harris Associates, an investment firm, also sold its stake. The new owners have to bear that suffering.
On March 9, Credit Suisse announced a delay in publishing its annual report after a last-minute phone call from America’s main financial regulator, the Securities and Exchange Commission. As a result, ‘material weaknesses’ in the firm’s financial-reporting system are less likely to reassure investors.
Shareholders finally got their report on March 14. Credit Suisse reported its fifth consecutive quarter of losses at the end of 2022.
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Credit Suisse chief executive Ulrich Koerner is optimistic that the bank will turn around. Michael Klein, the investment bank rebranded as CS First Boston, may step forward He served on the Board of Directors of Credit Suisse until October 2022. Swiss Credit Bank bought its boutique business for 175 million in February. There are reasons to take seriously the intention to build a large boutique investment bank. Credit Suisse has long specialized in advising on corporate buy-outs.
One option for Credit Suisse is to tie-up with UBS. It is reported that the central bank of Switzerland has also advised Credit Suisse to merge with UBS AG.
Credit Suisse is a 167 year old bank. Recently, one bank after another like Silicon Valley and Signature Bank of the United States fell into financial trouble. This was followed by news of an imbalance at Europe’s Credit Suisse bank that could have even more serious implications.
Source: The Economist, Reuters
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