The collapse of Silicon Valley Bank on March 10, 2023, has sent ripples throughout the global economy. More and more financial institutions are starting to feel the effects.
Credit Suisse, too, has not been exempt from the storm. As per the latest reports, UBS has taken over the troubled bank in a takeover bid of $3.2 billion.
What led to this collapse? What lies in store for Credit Suisse shareholders?
Keep reading to find out!
The Story So Far
Credit Suisse is no stranger to trouble. It has been navigating through treacherous and dangerous waters for the past couple of years.
Let’s take a look at the events leading up to the collapse.
It all started in 2021 when Greensill and Archegos collapsed. The former was a British financial services firm, and the latter a US-based hedge fund. Credit Suisse had significant investments in both of these entities, and the dual collapse had quite a significant effect on the bank. It made a combined loss of about $15 billion!
Now, that’s quite a setback to handle on its own. But sadly, this only marked the beginning of a steady downward spiral.
A number of scandals were uncovered soon after that. From the Mozambique bribery case to the publication of the “Suisse Secrets” report, things have just gone from bad to worse. Credit Suisse has been on shaky ground for a while. Depositors had already started withdrawing their holdings, leading to more strain on the operating margin.
The collapse of the Silicon Valley Bank was the cherry on top of the cake!
In its wake, people have been withdrawing their money all over the world in search of safer havens. The Asian region, in particular, has been especially shaken. According to a report by Bloomberg, customer deposits dropped by more than 40% in December 2022. More and more wealth managers are starting to shift to other banks.
In fact, so severe has been the outflow in the Asian region that Credit Suisse actually increased its interest rates for deposits above $5 million to 6.5%, to attract more capital.
All of these culminated in worsening market perceptions and steadily declining share prices.
The bank hit rock bottom on March 19, 2023.
Who bailed out Credit Suisse?
The Swiss authorities stepped in and approved the takeover by UBS, the other pillar of Swiss banking. It is an effort to prevent the systemic collapse of the Swiss banking system in a domino effect not unlike the 2008 financial crisis.
“It’s a historic day in Switzerland, and a day frankly, we hoped, would not come.” — UBS Chairman Colm Kelleher
UBS will be taking over some of the most critical portfolios like asset management and wealth management. It will also be taking over the loss burden of $5.4 billion. The details of the takeover are still being hashed out, and will be completed by the end of this year.
The Road Ahead
Bailout or not, the collapse of Credit Suisse has done irreparable damage to Switzerland’s impeccable reputation as a global safe haven for money. The road ahead is rocky, to say the least.
We may see the growth of other global financial centers like Singapore. And as far as recovery goes, only time will tell what lies in store for Credit Suisse!