- MAP Asia Pacific Ltd
How scandal and mistrust ended Credit Suisse’s 166-year history
Credit Suisse Group AG, once one of the stalwarts of the global financial system, is no more.
After tense talks over the weekend, UBS Group AG agreed to buy Credit Suisse in an all-share deal for about $3.25 billion, less than the market value of troubled US lender First Republic Bank. The government-brokered sale marks the Swiss bank’s final fall from grace, succumbing to a crisis of confidence that threatened to spread to global financial markets.
For 166 years, Credit Suisse helped position Switzerland as a linchpin of international finance and went toe-to-toe with Wall Street titans before a steady drumbeat of scandals, legal issues and management upheaval undermined investor confidence. While the decay was years in the making, the end came quickly.
In the aftermath of the collapse of Silicon Valley Bank last weekend, long-suffering Credit Suisse quickly became a focal point of concern. After top shareholder Saudi National Bank told Bloomberg Television on Wednesday that it would “absolutely not" invest more in the lender, a rout was on.
A $54 billion financing backstop from the Swiss central bank — sealed in the dead of night on Thursday to calm jitters — failed to become the lifeline Credit Suisse had hoped. With the country’s banking sector at risk, Swiss authorities stepped in to push UBS to become a reluctant white knight.
The Swiss government “regrets that CS wasn’t able to master its own difficulties — that would have been the best solution," Finance Minister Karin Keller-Sutter said at a press conference in Bern on Sunday. “Unfortunately, the loss of confidence from the markets and customers was no longer able to be halted."
Designated as one of the world’s 30 systemically important banks, Credit Suisse is the biggest casualty of the financial turmoil triggered by central banks as they tighten monetary policy to rein in inflation. While concerns about further contagion are sure to persist, the sale to UBS avoids a disorderly collapse.
Before the global financial crisis — which Credit Suisse survived without a bailout, unlike many of its peers — the Swiss lender had more than $1 trillion in assets, but after years of decay, they’ve dwindled to about $580 billion, roughly half of UBS’s.
“Let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," said UBS Chairman Colm Kelleher, who will remain in the role after the transaction.
For Switzerland, the blow could be significant. Home to 243 banking groups and 24 branches of foreign banks, the country’s stability and wealth is largely reliant on the finance industry. The combined assets of UBS and Credit Suisse are roughly double the size of Switzerland’s gross domestic product, and Sunday newspapers from tabloids to broadsheets were filled with stories about the looming demise of a national icon.
Even as market anxiety intensified, Credit Suisse insiders acted as if they could still control the situation. Although the mood was somber, managers organized town hall meetings to quell employee fears and investment advisers fielded calls from clients to discuss liquidity concerns, according to people with knowledge of the discussions.
But in its hometown of Zurich, doubts and frustration were growing. Outside its headquarters on the stately Paradeplatz, someone scrawled: “The next bank to go bye bye?" That question was later replaced by expressions of anger and disgust as reality gradually set in.
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