International investment bank Credit Suisse has been bought out by fellow Swiss bank UBS, following a week in which it was at the heart of concerns that a global banking crisis could be on the way.
The financial giant, which was among the 30 international banks considered to be too big to fail, saw its share price fall significantly as investors were spooked by weaknesses in its operations. Last Thursday (16 March), it was forced to borrow $54 billion (£45 billion) from the Swiss central bank to shore up its finances.
Credit Suisse has been hit by some of the shockwaves emanating from the collapse of Silicon Valley Bank (SVB) in the USA. Investors across the globe have shown a lack of confidence in the banking system, which has been reflected in falling share prices for many of the world’s largest banks. However, the 167-year-old business also had many of its own problems to contend with.
The news comes after SVB’s UK arm was rescued by HSBC on 13 March. The Bank of England’s next interest rates decision is set to come this Thursday (23 March), with any base rate hike likely to add to concerns about the health of the financial system given such a move can lower the value of the government bonds many banks rely on as safe investments.
So, what happened to Credit Suisse, why was it bought put by UBS and who were its biggest shareholders?
Who owns Credit Suisse?
As a publicly listed company, Credit Suisse had a board of directors who are appointed by its shareholders. So, there was no one owner of the business before its UBS takeover, but several key shareholders.
While banks based in other parts of the world - like UK-based HSBC - do not tend to reveal who their biggest shareholders are, Swiss banking laws mean companies based there have to reveal the identity of shareholders who hold shares over certain percentage thresholds, starting at 3%.
It means we know that Credit Suisse’s largest shareholder was the Saudi National Bank - a commercial bank mostly owned by the Saudi Arabian government - which held approximately 9.88% of the bank’s shares. Qatari state-owned investment bank Qatar Holding LLC had 5.03%, while Saudi investment vehicle Olayan Group held 4.93% and global investment giant BlackRock had 4.07%.
So, almost a quarter of Credit Suisse’s shares were held by these four different entities at the time of the UBS buyout. Given the merger was pushed through by the Swiss government, these shareholders were not consulted on the takeover.
What happened to Credit Suisse?
What’s happening to Credit Suisse is partly a consequence of the collapse of Silicon Valley Bank (SVB) on 10 March. SVB imploded after suffering a major fall in the value of its investments in government bonds as well as experiencing difficulties in the wake of growth struggles in the tech industry - a sector it relied upon.
A situation known as a ‘run’ hit SVB. Investors sold off shares and firms with deposits withdrew them from the bank because they lost confidence in its ability to operate without going bankrupt, which then increased the chances of bankruptcy. This doom loop scenario was seen in the UK when Northern Rock collapsed in 2007.
When this sort of event takes place, investors and account holders at other banks can become spooked. They will look at their bank’s operations, and if any weaknesses emerge, may begin a run on that bank.
The US government has attempted to stop the rot by offering emergency loans to banks - mostly smaller, regional institutions - who are struggling with this kind of scenario. This safety net measure appears to have calmed the system for now.
But it did not stop shares in banks and stock exchanges around the world from falling over the course of the week following on from SVB’s collapse - a major issue given banks partly rely on the investment shares can provide.
Credit Suisse was the lightning rod for this share-selling activity. It had seen its share price fall fivefold since January 2020 after being involved in several scandals, including spying allegations that forced its CEO to quit in 2020, the Greensill Capital scandal, as well as a cocaine money laundering case in 2022. It also announced its biggest annual loss since 2008 in February - news that has seen it move to restructure its business.
While its shares were already by the time of SVB’s collapse, they plummeted a further 24% on Wednesday (15 March) after its biggest shareholder the Saudi National Bank said it could not put up more funds, and another 8% on Friday (17 March). Shares fell despite Credit Suisse’s CEO Ulrich Koerner insisting the bank had enough money to keep going.
In a bid to restore confidence, it took up the option of a $54 billion loan from the Swiss central bank to tide it through turbulence from share sell-offs - a move which saw its share price recover by 18%. But Switzerland’s President Alain Berset said late on Sunday (19 March) that “necessary confidence could no longer be restored” in the bank, adding that a “rapid solution guaranteeing stability was essential.”
The worry for the Swiss authorities was that a collapse in Credit Suisse would trigger a financial meltdown in Switzerland, as well as further afield. The solution it opted for saw it facilitate a $3.2 billion (£2.6 billion) deal for a merger with UBS. This deal is set to see the shuttering of Credit Suisse’s investment banking division, and could see 5,500 job losses at its Canary Wharf base.
Will there be a banking crisis?
While SVB and Signature’s collapses were bad news, a collapse by Credit Suisse would have plunged the global banking system into a major crisis. It is much more of a global bank than the US institutions and held hundreds of billions of pounds worth of money and assets for its clients.
Although this scenario has now been avoided, unresolved issues remain according to Susannah Streeter, head of money and markets at Hargreaves Lansdown. Posting on Twitter, she said: “Credit Suisse was on life support and only a full transplant of the bank into UBS could restore stability. An operation of this magnitude is a big risk – that’s why UBS was only willing to pay $3.23 billion, less than half of Friday's valuation.
“Markets stay rattled. Investors in Asia initially welcomed the deal but fresh worries have bubbled up. Focus has shifted to implications for high-risk bond holders in banks after those with riskier Credit Suisse debt saw their investment wiped out. It is not yet known exactly where more pain will emerge, but investors fear the problems are not yet over.”
Despite the Bank of England insisting that the Credit Suisse buyout would “support financial stability” and saying that the UK’s banking system “remains safe and sound”, the FTSE 100 lost 2% on Monday morning (20 March), with Standard Chartered and Barclays both taking significant hits to their share prices - changes that suggest the markets are not confident about the international banking system. UBS has itself taken a hit of 7% as a result of investor concerns about its Credit Suisse deal.
While Ms Streeter said that big lenders should be “insulated” from the current shocks, the overall situation could make banks “more cautious” with lending money. “[It] would be a blow for already fragile housing markets. Worries are rattling investors about what repercussions a potential lending squeeze will have on the global economy.”