Last Updated on June 28, 2023 by Wenivesh Team
As Silicon Valley Bank’s collapse continues to impact the stock market, Credit Suisse is facing pressure from major governments, including Switzerland, due to the systemic nature of the bank. The bank’s market value had already suffered a significant hit earlier in the week over concerns of contagion from the collapse of two US banks and the discovery of material weaknesses in internal controls in its annual report, leading to a decline of over 30% in its share prices. The US Treasury is also monitoring Credit Suisse and in touch with global peers. Amidst these developments, Credit Suisse’s main shareholder, Saudi National Bank Chairman Ammar Al Khudairy, announced that it would not invest any more money, leading to a historic low in the bank’s share prices. These events come amidst a wider market downturn and renewed concerns about the banking sector in Europe.
Introduction:
Credit Suisse is a Swiss multinational investment bank and financial services company. It is one of the largest and oldest banks in Switzerland, founded in 1856. Over the years, the bank has expanded globally and provided services such as private banking, investment banking, and asset management. However, in recent years, Credit Suisse has been plagued by various scandals and controversies, leading to a significant loss in revenue and reputation. In this article, we will explore the history of Credit Suisse, its rise and fall, and the factors that led to its downfall.
What is the history of Credit Suisse?
Credit Suisse was founded in 1856 by Alfred Escher, a Swiss politician and entrepreneur. The bank was established to provide financing for the construction of railways in Switzerland, which was a major development project at the time. Over the years, Credit Suisse expanded its services and began to offer private banking and investment banking services. The bank played a significant role in the development of the Swiss financial industry and became one of the largest banks in Switzerland. In the 1990s, Credit Suisse expanded globally and established a presence in various countries, including the United States, United Kingdom, and Asia. The bank became a major player in the global financial industry and was known for its expertise in wealth management and investment banking.
What are the factors that led to Credit Suisse’s downfall?
Credit Suisse’s downfall can be attributed to various factors, including:
a. Poor risk management:
Credit Suisse had a history of poor risk management practices, which led to significant losses in recent years. In 2015, the bank was fined $2.6 billion for helping US clients evade taxes. In 2018, Credit Suisse incurred losses of over $1 billion due to a risky trading strategy known as the ‘VelocityShares’ trade.
b. Legal and regulatory issues:
Credit Suisse has been embroiled in various legal and regulatory issues over the years. In 2021, the bank was fined $4.7 billion for its involvement in the collapse of a US hedge fund, Archegos Capital Management. The bank was also fined $536 million in 2019 for its involvement in a corruption scandal in Mozambique.
c. Poor corporate culture:
Credit Suisse’s corporate culture has been criticized for its focus on short-term profits and lack of accountability. The bank’s CEO, Tidjane Thiam, resigned in 2020 after a spying scandal was uncovered, which involved the bank spying on its employees.
d. Loss of reputation:
The various scandals and controversies surrounding Credit Suisse have led to a loss of reputation and trust among its clients and stakeholders. The bank’s share price has plummeted, and its revenue has been significantly impacted.
What are the consequences of Credit Suisse’s downfall?
The consequences of Credit Suisse’s downfall are far-reaching and significant. Some of the consequences include:
a. Loss of revenue:
Credit Suisse has incurred significant losses due to the various scandals and controversies, which have impacted its revenue and profitability.
b. Job losses:
The bank has announced plans to cut 5,000 jobs as part of its restructuring efforts to address its financial woes.
c. Impact on the Swiss financial industry:
Credit Suisse’s troubles have had a negative impact on the Swiss financial industry, which is a significant contributor to the country’s economy.
d. Trust and reputation:
The various scandals and controversies have damaged Credit Suisse’s trust and reputation among its clients and stakeholders, which may take a long time to recover.
Conclusion:
Credit Suisse’s downfall is a cautionary tale of the consequences of poor risk management, lack of accountability, and short-term focus. The bank’s troubles have had a significant impact on its revenue this year.