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World News | Nearing the edge of the “cliff”, Credit Suisse is not considered a systemic risk


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GENEVA, March 17 (AP) — Credit Suisse’s long-running troubles came to a head this week, as a record stock plunge sparked fears of a banking crisis spreading from the United States to Europe.

But problems at Switzerland’s second-biggest lender have persisted for years, ranging from bad bets at hedge funds to an espionage scandal involving rival UBS AG.

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Experts say the turmoil is largely a by-product of Credit Suisse’s troubles in recent years – making it look relatively vulnerable – and investor concerns about the overall health of Western banks following the collapse of Silicon Valley Bank in the US.

Shares in Credit Suisse fell more than 30% on Wednesday after its largest shareholder, the National Bank of Saudi Arabia, said it would not provide more funds to the Swiss bank.

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Hours later, the Swiss Central Bank agreed to lend up to 50 billion francs ($54 billion) to Credit Suisse to shore up its finances. Shares rebounded.

Shares on the Swiss stock exchange were down 12 percent on Friday, trading around 1.86 francs ($1.94) at noon. The stock has experienced a long decline: in 2007 it traded at more than 80 francs.

Eswar Prasad, an economist at Cornell University, said Credit Suisse had become a “significant bellwether on the fragility of the global banking system” and failure could undermine confidence in the banking system and spur further central bank intervention.

“The Swiss National Bank has effectively pulled Credit Suisse back from the brink and may have stabilized the situation by injecting a lot of liquidity,” said Prasad, who studies the global financial system. Whether the measures Bank Negara has taken so far will contain the fire, or if it spreads further, could cause additional major turbulence.”

The Saudi bank chairman admitted being surprised by the impact of his comments, but said he was “optimistic” that Credit Suisse would “get back to where it was” – a storied bank with more than a century and a half of history.

“I think the market is very disturbed and they’re looking for stories or things that confirm fears,” National Bank Chairman Ammar al-Khudairy told CNBC on Thursday.

He called Credit Suisse’s private wealth management, Swiss domestic banking and asset management divisions “stable, long-term consistent businesses” and that UBS was “working hard to divest other, more volatile businesses”.

Following reforms implemented after the 2008 financial crisis, Credit Suisse became one of 30 financial institutions known as global systemically important banks, which are subject to stricter scrutiny and higher capital requirements.

Credit Suisse was founded in 1856 by industrialist Alfred Escher as the “Schweizerische Kreditanstalt” to finance the development of Switzerland’s complex rail network across the Alps.

At the time, it was a high-risk, loss-making business. Even today, historians say, a penchant for risk and innovation permeates corporate culture.

By 1977, Credit Suisse was at the center of a banking scandal known as the “Chiasso Affair,” which resulted in the loss of nearly $1.4 billion at a branch of the bank in Italian-speaking Switzerland using fugitive funds from Italy to conduct illicit transactions. franc.

The “internationalization” of Credit Suisse – focusing more on the US and adopting an “Anglo-Saxon” culture – led to “identity issues” starting in the 1980s, when it began its rise from a mid-sized European bank to a global one, Tobias Straumann, an economic historian at the University of Zurich, told the Neue Zuericher Zeitung newspaper on Friday.

“(Swiss bankers) simply can’t handle this risk-focused and high-profit U.S. investment banking culture,” he said.

“The combination of Anglo-Saxon investment banks and Swiss asset management is not working in the long run.”

He added that Switzerland’s “end of bank secrecy” – which had long helped Credit Suisse secure large financial reserves – had had an important impact in recent years by weakening its wealth management business.

Other Western countries are pressuring Switzerland to tighten laws to prevent wealthy tax evaders and others from hiding money in Swiss banks.

Recently, Credit Suisse’s problems have been mainly poor corporate governance, personnel decisions and excessive investment risks.

In 2020, Chief Executive Tidjane Thiam resigned after an external investigation found the bank’s chief operating officer had ordered surveillance of several former executives, including former wealth management chief Iqbal Khan, who had joined Zurich rival UBS.

His successor, longtime Credit Suisse veteran Thomas Gottstein, resigned two years later after the bank reported a quarterly loss of 1.6 billion Swiss francs.

Credit Suisse even took itself to Swiss courts, being fined last June for failing to stop money laundering by a Bulgarian gang 15 years earlier.

The case partly involved an unidentified wrestler who was accused of trafficking large quantities of cocaine from South America to Europe via “mules” and laundering the money.

Last fall, the bank announced hundreds of millions of dollars in settlements with U.S. authorities over the mortgage-backed securities behind the 2008 financial crisis and a tax fraud case in France.

Credit Suisse “is in trouble because it’s been in trouble for a long time. Because of the turmoil in the U.S. banking industry, it has a lot of other challenges that are on everyone’s radar right now,” said May Kroll, chief economist at the Kroll Institute. Gengreen said.

That’s not like Silicon Valley Bank, which has been hit by rising interest rates. The Swiss bank “has a lot of high-quality assets” but is facing a liquidity crisis, and the “strategy” for dealing with this crisis is central bank intervention, she said.

“This is not a repeat of 2008,” Green said. “But the overreaction we’re seeing in the market is eerily reminiscent of 2008. It’s giving everyone a Spider-Man sting.”

She said she was concerned, “but rationally, there’s no reason to think a banking crisis is inevitable. It’s just that markets aren’t always rational.” (AP)

(This is an unedited and auto-generated story from a Syndicated News feed, the content body may not have been modified or edited by LatestLY staff)


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