Credit Suisse has been bought by fellow Switzerland-based bank UBS after weeks of turmoil at the financial services giant.
The beleaguered 167-year-old bank, which had been considered to be one of the world’s ‘systemically important’ financial firms (i.e. too big to fail), saw its share price collapse over the past week. Credit Suisse now faces legal action from investors who lost billions of pounds as a result of the Swiss government-brokered deal.
It all comes after the collapse of Silicon Valley Bank (SVB) and Signature Bank in the US. The UK arm of SVB was purchased by HSBC last week, with the UK government facilitating the deal as part of a bid to maintain confidence in the banking system.
With investor jitters about the confidence in the global banking system refusing to go away, Prime Minister Rishi Sunak’s spokesperson said on Monday (20 March) that the UK’s system “remains safe and well capitalised”. However, there could be some bad news for the UK from the UBS-Credit Suisse deal, as it has put thousands of jobs in London at risk.
So, why did Credit Suisse ‘fail’ - and how many jobs are under threat in the UK capital?
What happened to Credit Suisse?
Although Credit Suisse’s demise dovetailed neatly with the collapse of SVB and Signature Bank in the US, its failure was the culmination of years of difficulties. These can be clearly traced in its share price, which by last Wednesday (15 March) had fallen 98% from an all-time high of 80 Swiss francs per share recorded in 2007.
In the last five years alone, the bank has been at the centre of five major scandals. All of these culminated in a situation Swiss President Alain Berset said meant that “necessary confidence could no longer be restored” in the bank - confidence being a cornerstone of banking. These scandals include:
- Corporate espionage: then-CEO Tidjane Thiam was forced to quit in 2020 after it emerged Credit Suisse had hired two private detectives to carry out surveillance on two former executives, one of whom had joined UBS.
- Archegos exposure: Credit Suisse turned a $5.5 billion loss in 2021 when US hedge fund Archegos Capital Management collapsed. A report into what went wrong found the Swiss bank had poor risk management practices.
- Greensill Capital: also in 2021, Credit Suisse was exposed to the collapse of the supply chain financing firm after senior executives overruled risk managers to approve a $160 million loan that Greensill then couldn’t pay back when it went under.
- Chair resignation: the bank’s chair António Horta-Osório was forced to resign in 2022 after having been found to have broken Covid quarantine rules in both the UK and Switzerland
- Money laundering: also in 2022, Swiss courts found Credit Suisse guilty of failing to prevent money laundering by a Bulgarian cocaine gang between 2004 and 2008.
A court case around what’s been dubbed the ‘tuna bonds scandal’ is set to take place later this year. It saw money raised through bonds that was meant to be spent on Mozambique’s tuna-fishing fleet go towards arms deals instead. Former senior executives have already pleaded guilty to their involvement with the trial set to focus on how much Credit Suisse knew about what happened. For the bank’s part, it has said former staff hid their activities from its oversight.
The final nails in Credit Suisse’s coffin came after it declared a record $7.9 billion (£6.4 billion) loss for 2022 in February 2023. It was working on a restructure when SVB and Signature Bank failed - the two collapses increasing scrutiny of Credit Suisse’s balance sheet.
After days of falling share prices, things took a turn for the worse on Wednesday (15 March), when its largest shareholder - the Saudi National Bank - said it could not prove any extra money to keep the bank going. At the time, there was no suggestion that the bank was in any danger of going under, but it undermined confidence in Credit Suisse’s ability to survive should the downturn in its fortunes turn out to be terminal, causing its shares to drop 24%.
On Thursday (16 March), it turned to the Swiss central bank for extra cash - the first time since 2008 a bank of its size had sought out such support - receiving a loan of 50 billion Swiss francs (£44 billion). Its CEO Ulrich Körner insisted it had enough liquidity (i.e. cashflow) to keep going.
But with its share price falling further on Friday and with customers withdrawing their money from Credit Suisse accounts, the Swiss government stepped in to find a buyer. On Sunday (19 March), fellow Swiss bank UBS stepped in to buy it for $3.2 billion (£2.6 billion).
Now Credit Suisse faces another potential lawsuit because the deal saw some of its investors lose $17 billion (£14 billion) as a tranche of higher-risk bonds were written off (i.e. were valued at £0).
How many job losses will there be?
As part of its buyout, UBS said it would wind down the investment banking arm of Credit Suisse. However it has stressed it is “too early to say” what the impact of the merger will be on jobs.
At the time of the buyout, Credit Suisse had more than 45,000 employees worldwide. The biggest chunk of these (17,000) are based in Switzerland. As part of its planned restructure, it was aiming to cut 9,000 jobs around the world over the next three years.
Another 5,500 work from Canary Wharf in London. Not all of them work in investment banking, with this number including wealth and asset managers, as well as technology, risk and compliance teams.
Former UBS UK CEO Mark Yallop told BBC Radio 4’s Today programme he believes job losses are “inevitable”. UBS chair Colm Kelleher said in a news conference that his firm “will be considerate employers” who would work in a “rational way”.
Additional reporting by PA