Banks rush to troubled Credit Suisse: Markets brace for further turmoil as Swiss lender bailed out for £45bn is in crisis
- Credit Suisse attempts deal that may be announced before markets open
- Over £400bn wiped from bank stocks after Silicon Valley Bank collapse
- The fate of Credit Suisse has also shaken the markets
Credit Suisse’s future was in the balance last night as potential buyers surrounded the struggling Swiss lender.
In the biggest banking crisis since the crash of 2008, the Swiss central bank was frantically trying to orchestrate a deal that could be announced before markets open tomorrow.
More than £400bn was wiped out of bank stocks last week after the collapse of Silicon Valley Bank in the US spooked savers and investors alike.
But the fate of Credit Suisse, which employs around 5,000 bankers in London, also rattled markets. Its shares hit new lows last week, even after being given a £45bn lifeline by Swiss authorities. The 167-year-old bank is now effectively up for sale, with Switzerland’s biggest rival UBS seeking to table a bid that experts say could lead to the dissolution of Switzerland’s second biggest.
The Bank of England is also closely monitoring developments, as Credit Suisse is considered a “systemically important” bank, i.e. too big to fail. Its collapse would send shockwaves throughout the financial system, experts warn.
Sign of the times: The fate of Credit Suisse, which employs around 5,000 bankers in London, has rocked the markets
The only UK banks deemed too big to fail are HSBC, Barclays and Standard Chartered.
Swiss regulators told their US and UK counterparts on Friday that integrating Credit Suisse into UBS was “plan A” to stop the collapse of investor confidence in Credit Suisse, the Financial Times reported.
Other options beyond a full takeover are also being discussed. Analysts say a deal could involve Credit Suisse selling its retail banking business to a local lender, although UBS – Switzerland’s biggest bank – could be barred from buying it on competitive grounds.
Its investment banking arm, which Credit Suisse already plans to spin off as First Boston, is also up for grabs, but the wealth management business is seen as the most attractive to potential buyers.
Nouriel Roubini – nicknamed ‘Dr Doom’ for predicting the financial crash of 2008 – said the merger of Credit Suisse and UBS would ‘create a monster too big to fail’ that would be twice the size of the Swiss economy . Splitting up Credit Suisse would “reduce systemic risk”, he added. Whatever form it takes, the Swiss central bank wants to announce a deal before markets open tomorrow to avoid further panic selling.
Frederique Carrier, head of investment strategy at RBC Wealth Management, said a failure to strike a quick deal could shake investor confidence and heighten market volatility.
In his budget last week, Chancellor Jeremy Hunt said rules introduced since the 2008 financial crisis meant Britain’s banking system ‘remained safe, healthy and well capitalised’. He pointed to the sale last week of the UK branch of Silicon Valley Bank to HSBC, which had protected “customer deposits at no cost to the taxpayer”.
But critics turned to SVBUK last night after Sky News reported it had paid out millions of pounds in employee bonuses just days after the bailout deal.
Credit Suisse has been dogged by a series of scandals, multi-billion dollar losses and endless boardroom turmoil.
The bank suffered an £8bn hit in 2021 following the collapse of specialist financial firm Greensill Capital, where former Prime Minister David Cameron was an adviser.
It also lost £4.5billion when US investment fund Archegos went bankrupt and became the first Swiss firm to be convicted of a corporate crime after being found guilty of laundering for a Bulgarian drug cartel. Former Lloyds Bank boss Antonio Horta-Osorio was forced out as chairman last year after breaking Covid quarantine rules to watch the European Championship football final at Wembley and the Wimbledon men’s tennis final on the same day.
Former Prudential boss Tidjane Thiam resigned as managing director of Credit Suisse in 2020 after a spy scandal and a high-profile dispute with his neighbor – a bank subordinate – shocked the Swiss company.
US investment giant BlackRock – one of Credit Suisse’s biggest clients – last night denied reports it was interested, saying it “is not involved in any plans to acquire all or part of the Swiss credit”. UBS, Credit Suisse, the Swiss National Bank and the Bank of England all declined to comment.
While many of Credit Suisse’s problems are self-inflicted, the roots of the latest crisis lie in the recent rapid rise in interest rates around the world to combat runaway inflation.