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The long list of costly events incurred by the investment bank grew this year with the unquantified losses on the Citrix leveraged financing deal to fund the buyout of the software group by two private equity groups.
Other issues include involvement in the Greensill supply chain financing, 4.8 billion Swiss franc charge to cover the Archegos hedge fund financing mess, a goodwill impairment relating to the purchase of Donaldson, Lufkin & Jenrette in 2000 and 1.2 billion Swiss francs to cover major litigation provisions.
$1.4b loss
The investment bank suffered a first-half, pre-tax loss of $US915 million ($1.4 billion) because of challenging markets, the cumulative impact of reduced risk appetite, and the exit of prime services.
Credit Suisse’s response to its existential problems has lacked urgency and the upheaval at the board and management level has not helped, close observers of the global investment banking market say.
Credit Suisse is on its third chairman in two years with Axel Lehmann replacing António Horta-Osório in January this year. Horta-Osório, who replaced Urs Rohner as chairman in December 2020, was forced out over his failure to comply with COVID-19 travel restrictions.
Chief executive, Ulrich Körner, took over in August from Thomas Gottstein, who announced the new capital-light strategy for investment banking before his departure.
The collapse in Credit Suisse’s share price last week to a record low puts the bank in a bind. Its price to book of 0.2 suggests the market has no confidence in the value of assets on its 800 billion Swiss franc ($1.2 trillion) balance sheet.
The promise to cut costs by 1 billion Swiss francs to 15.5 billion Swiss francs in the medium term has not garnered market confidence in the stock even though shrinking to greatness requires heavy restructuring costs.
Bungling the operational crisis
It should have raised capital in December when the bank’s market capitalisation was 25.69 billion Swiss francs. It is now valued at 10.78 billion Swiss francs and falling fast on rumours it wants to raise capital.
Having bungled the bank’s operational crisis there is now a danger it will fail to deal quickly with the growing lack of confidence in its ability to manage its own affairs.
That would feed into the wealth management division that has been suffering outflows this year following the dismay over the Greensill-induced losses.
The failure of Credit Suisse to understand the importance of maintaining an image as a financial fortress is perplexing given it sees its future in wealth management and asset management.
Some observers have questioned whether the bank has the appropriate CEO and chairman.
Credit Suisse finds itself in the same place as UBS did during the 2008-09 global financial crisis. It required a government bail-out to bolster a balance sheet hit by 30 billion Swiss francs in sub-prime mortgage losses.
The Swiss government tipped in 6 billion Swiss francs in October 2008 in return for a convertible note that was later sold at a profit of about 930 million Swiss francs.
Government funding is probably essential at this stage to bolster the balance sheet. A convertible note would be the most obvious as it would give other investors a signal that the government has faith in the upside.
The Swiss have long regarded UBS, Credit Suisse and Julius Baer as the country’s banking crown jewels. Over the years the government had tried to get UBS and Credit Suisse to merge but to no avail.
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