Raphael Stevens

Credit Suisse is currently undergoing a massive strategic overhaul in a bid to address chronic issues.
The stock has been in persistent decline since the crisis, against the backdrop of investment banking underperformance and a litany of scandals and risk management failures.
On Wednesday evening, Credit Suisse announced that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank.
Wednesday’s close at 1.697 Swiss francs per share was down almost 98% from the stock’s all-time high in April 2007.

The logo of Swiss bank Credit Suisse is seen at an office building in Zurich, Switzerland February 21, 2022.
Arnd Wiegmann | Reuters

Credit Suisse received a liquidity lifeline from the Swiss National Bank this week after its share price plunged to an all-time low, but the embattled lender’s path to the brink has been a long and tumultuous one.
The announcement that Credit Suisse would borrow up to 50 billion Swiss francs ($54 billion) from the central bank came after consecutive sessions of steep drops in its share price. It made Credit Suisse the first major bank to receive such an intervention since the 2008 Global Financial Crisis.

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The bank’s shares ended Wednesday at 1.697 Swiss francs — down almost 98% from the stock’s all-time high in April 2007, while credit default swaps, which insure bondholders against a company defaulting, soared to new record highs this week.
It comes after years of investment banking underperformance and a litany of scandals and risk management failures.
Scandals
Credit Suisse is currently undergoing a massive strategic overhaul in a bid to address these chronic issues. Current CEO and Credit Suisse veteran Ulrich Koerner took over from Thomas Gottstein in July, as poor investment bank performance and mounting litigation provisions continued to hammer earnings.
Gottstein took the reins in early 2020 following the resignation of predecessor Tidjane Thiam in the wake of a bizarre spying scandal, in which UBS-bound former wealth management boss Iqbal Khan was tailed by private contractors allegedly at the direction of former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private investigator and the resignations of a slew of executives.

The former head of Credit Suisse’s flagship domestic bank widely perceived as a steady hand, Gottstein sought to lay to rest an era plagued by scandal. That mission was short-lived.

In early 2021, he found himself dealing with the fallout from two huge crises. The bank’s exposure to the collapses of U.S. family hedge fund Archegos Capital and British supply chain finance firm Greensill Capital saddled it with massive litigation and reimbursement costs.
These oversight failures resulted in a massive shakeup of Credit Suisse’s investment banking, risk and compliance and asset management divisions.
In April 2021, former Lloyds Banking Group CEO Antonio Horta-Osorio was brought in to clean up the bank’s culture after the string of scandals, announcing a new strategy in November.
But in January 2022, Horta-Osorio was forced to resign after being found to have twice violated Covid-19 quarantine rules. He was replaced by UBS executive Axel Lehmann.

The bank began another costly sweeping transformation project as Koerner and Lehmann set out to return the embattled lender to long-term stability and profitability.
This included the spin-off of Credit Suisse’s investment banking division to form U.S.-based CS First Boston, a significant cut in exposure to risk-weighted assets and a $4.2 billion capital raise, which saw the Saudi National Bank take a 9.9% stake to become the largest shareholder.
March madness
Credit Suisse reported a full-year net loss of 7.3 billion Swiss francs for 2022, predicting another “substantial” loss in 2023 before returning to profitability in 2024.
Reports of liquidity concerns late in the year led to huge outflows of assets under management, which hit 110.5 billion Swiss francs in the fourth quarter.
After yet another sharp share price fall on the back of its annual results in early February, Credit Suisse shares entered March 2023 trading at a paltry 2.85 Swiss francs per share, but things were about to get worse still.

On March 9, the company was forced to delay its 2022 annual report after a late call from the U.S. Securities and Exchange Commission relating to a “technical assessment of previously disclosed revisions to the consolidated cash flow statements” in 2019 and 2020.
The report was eventually published the following Tuesday, and Credit Suisse noted that “material weaknesses” were found in its financial reporting processes for 2021 and 2022, though it confirmed that its previously announced financial statements were still accurate.
Having already suffered the global risk-off jolt resulting from the collapse of U.S.-based Silicon Valley Bank, the combination of these remarks and confirmation that outflows had not reversed compounded Credit Suisse’s share price losses.
And on Wednesday, it went into freefall, as top investor the Saudi National Bank said it was not able to provide any more cash to Credit Suisse due to regulatory restrictions. Despite the SNB clarifying that it still believed in the transformation project, shares dived 24% to an all-time low.

On Wednesday evening, Credit Suisse announced that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank under a covered loan facility and a short-term liquidity facility.
The Swiss National Bank and the Swiss Financial Market Supervisory Authority said in a statement Wednesday that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”
The support from the central bank and reassurance on Credit Suisse’s financial position led to a 20% pop in the share price on Thursday, and may have reassured depositors for now.
However, analysts suggest questions will remain as to where the market will place the stock’s true value for shareholders in the absence of this buffer from the Swiss authorities.

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“The direct exposures among Fitch-rated banks in APAC to SVB and Signature that we are aware of are not material to credit profiles,” Fitch said in a note.
Shares of banks and financials in Asia-Pacific markets on Friday took a breather in morning trade after seeing sharp losses in a volatile trading week.

A sign for the financial agency Fitch Ratings on a building at the Canary Wharf business and shopping district in London, U.K., on Thursday, March 1, 2012.
Bloomberg | Bloomberg | Getty Images

Asia-Pacific banks are “resilient to risks” highlighted by failures seen in U.S. banking sector, Fitch Ratings said Thursday, adding the exposure to Silicon Valley Bank and Signature Bank is insignificant for regional banks the agency covers.
“The direct exposures among Fitch-rated banks in APAC to SVB and Signature that we are aware of are not material to credit profiles,” Fitch said in a note.

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“Weaknesses that contributed to the failure of the two banks are among the factors already considered in our rating assessments for APAC banks, but these are often offset by structural factors,” Fitch said, adding that exposures tend to be the largest in India and Japan.
Fitch’s assessment on banks in Asia-Pacific comes as U.S. Treasury Secretary Yellen overnight said not all uninsured deposits will be protected in future bank failures.

We generally view securities portfolio valuation risks as manageable for APAC banks.

Fitch Ratings

‘Sovereign support’

While Fitch sees a significant risk of volatility in deposits for digital banks in the region, it noted the governments in Asia-Pacific will likely step in to support their banks when needed – a possibility that will help mitigate further risk.

“We believe risks from valuation losses are offset by the likelihood that the authorities will provide liquidity support to banks if needed,” the agency said, pointing to regulators in Australia and Japan as examples.

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Officials in the region “emphasize strong interest-rate risk management,” including in Australia, that levies minimum requirement for non-traded interest rate risk, the analysts said, adding that Japanese banks have been reducing securities investments and duration.
“Ultimately, the creditworthiness of many Fitch-rated banks in APAC is heavily influenced by prospects for extraordinary sovereign support,” the note said.
“We generally view securities portfolio valuation risks as manageable for APAC banks,” Fitch said.

Fed’s next steps

Fitch said that even if the Federal Reserve were to make earlier than expected changes to its monetary policy, such as a cut its benchmark interest rate instead of an expected rate hike, banks in the region would still not see much of an impact.
The agency highlighted that Fitch doesn’t see the latest developments leading to major shifts in U.S. monetary policy.
“If they do result in lower peak U.S. rates or earlier U.S. rate cuts than we expect, this could cause monetary policy in some APAC markets to be looser than under our baseline,” it said.
“Generally, we believe this would be credit negative for APAC banks, as the effect on net interest earnings would outweigh that on securities valuations, but it would aid asset quality and we would not expect meaningful effects on bank ratings.”

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The ruling Communist Party of China is establishing commissions to oversee finance and tech, state media announced Thursday.
The changes come as Chinese President Xi Jinping sees unity under the party as essential for building up the country.
Beijing has yet to announce who will head the new party commissions.

People pose with the Chinese Communist Party flag during a visit to the Museum of the Communist Party of China in Beijing on March 3, 2023, ahead of the opening of the annual session of the National People’s Congress on March 5.
Greg Baker | Afp | Getty Images

BEIJING — The ruling Communist Party of China is establishing commissions to oversee finance and tech, state media announced Thursday.
The changes come as Chinese President Xi Jinping sees unity under the party as essential for building up the country. That contrasts with a tendency of Chinese leaders in past decades to delegate more power to the government and its ministries.

A new “Central Financial Commission” is set to strengthen the party’s “centralized and unified leadership over financial work,” state media said Thursday in Chinese, according to a CNBC translation. The commission is responsible for high-level planning in financial stability and development, the report said.
The Chinese government’s annual legislative meeting this month emphasized that addressing financial risks is a priority for policymakers this year.
The report said the new commission’s administrative office will take on the responsibilities of the State Council’s Financial Stability and Development Committee — a group once overseen by the essentially retired Liu He and now dissolved.
Alongside that administrative office, a “Central Financial Work Commission” will be established to focus on ideological and party-related work in the finance industry, state media said.

While state media did not specify, a financial work commission of the same name had been set up in the aftermath of the 1998 Asian financial crisis. The commission was dissolved after about five years, leading to the establishment of the now-defunct China banking regulator in 2003.

It’s unclear how the commission’s future work will compare with history.
Back in the late 1990s and early 2000s, the Central Financial Work Commission helped to make financial regulation and supervision more streamlined — minimizing the influence of powerful interest groups on regulators, Sebastian Heilmann, professor of political economy of China at the University of Trier, said in a paper. He later became founding president of the Mercator Institute for China Studies.
“But the hierarchical institutions of Party control were incapable of introducing market-based incentive structures for financial executives and failed to suppress financial mismanagement and corruption,” Heilmann wrote in 2004. “Moreover, they caused frictions with the emerging new forms of corporate governance and the increasing activity of foreign investors.”

Tech and State Council restructuring

Thursday’s announcement included previously released details on plans to restructure the State Council — the Chinese government’s top executive body — with the establishment of the Central Science and Technology Commission.
Responsibilities of that party commission are borne by the restructured Ministry of Science and Technology.
The State Council changes established a National Financial Regulatory Administration to oversee most of the financial industry — except for the securities industry. The plan also changed the designation of the China Securities Regulatory Commission within the State Council from one similar to the council’s Development Research Center to that of the customs agency.

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Beijing has yet to announce who will head the financial administration or the new party commissions.
The changes announced Thursday are set to take effect at a national level by the end of this year.
Other new commissions include groups to oversee the party’s work in industry associations, and the affairs of Hong Kong and Macao, state media said. Beijing has tightened its control of the regions, which — under the “one country, two systems” structure — enjoy freedoms non-existent on the mainland.
Xi — president of China and general secretary of the party — has consolidated his power and overseen increased party presence in the economy, including among businesses that aren’t state-owned.
The new commissions are part of the party’s central committee, which has about 200 members. From those members come the core leadership — the Politburo and its standing committee.
Membership changes are made every five years at party congresses, the most recent of which was held in October. At that congress, Xi paved the way for his unprecedented third term as president and packed party leadership with loyalists.

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Signage outside a Signature Bank branch in New York, US, on Monday, March 13, 2023.
Stephanie Keith | Bloomberg | Getty Images

Financial institutions took billions in short-term loans this week from the Federal Reserve as the industry copes with a serious crisis of confidence and liquidity, the central bank reported Thursday.
Utilizing tools the Fed rolled out Sunday, banks looking for cash infusions borrowed $11.9 billion from the Bank Term Funding Program. Under that facility, banks can take one-year loans under favorable terms in exchange for high-quality collateral.

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Most banks took the more traditional route, using the Fed’s discount window under terms slightly less favorable, with borrowing totaling nearly $153 billion. The discount window provides loans of up to just 90 days, while the BTFP term is for one year. However, the Fed eased conditions at the discount window to make it more attractive for borrowers in need of operating funds.
There also was a large uptick in offered bridge loans, also done over short terms, totaling $142.8 billion, made primarily to now-shuttered institutions so they could meet obligations regarding depositors and other expenses.
The data comes just days after regulators shut Silicon Valley Bank and Signature Bank, two institutions favored by the high-tech community.
With fears high that customers who exceeded the $250,000 Federal Deposit Insurance Corp. guarantee could lose their money, regulators stepped in to back all deposits.
The programs ramped up the totals on the Fed balance sheet, escalating the total by some $297 billion.

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A worker sorts packages at a FedEx Express facility on Cyber Monday in Garden City, New York, US, on Monday, Nov. 28, 2022.
Michael Nagle | Bloomberg | Getty Images

Check out the companies making headlines in extended trading.
FedEx — The package-shipping company’s shares were up 9% after it reported a beat on earnings in its fiscal third quarter and raised its earnings forecast for the full year. FedEx reported adjusted earnings of $3.41 per share, topping analysts’ estimates of $2.73 per share, according to Refinitiv. Meanwhile, the company’s revenue fell below expectations. FedEx posted $22.17 billion in revenue, while analysts had estimated $22.74 billion. Shares of United Parcel Service popped 2% in sympathy.

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9 hours ago

First Republic Bank — The bank’s shares were down 15% during after-hours trading. During the regular trading session, the stock reversed earlier losses and rallied almost 10% as a group of 11 banks, including Bank of America and Goldman Sachs, agreed to deposit $30 billion in First Republic. Shares of Zions Bancorp and KeyCorp, which are among the regional banks facing a rough week, fell more than 2%.
Merck — Shares of the pharmaceutical company fell nearly 2% in extended trading after Merck provided an update on a trial for one of its metastatic non-small cell lung cancer drugs. The results didn’t reach “statistical significance,” and Merck said patients in this arm of the study “should be switched to a standard of care.”

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