Summary: In close association with various financial crises, ordinary citizens often unknowingly bear the brunt of these upheavals. On March 19, 2023, the Swiss Federal Government announced that Credit Suisse Group would acquire the second-largest banking group in Switzerland, Credit Suisse Bank, for approximately $32.3 billion. This marks the first acquisition involving two globally systemically important banks since the 2008 international financial crisis.

Introduction to the Key Player, “Credit Suisse Bank”:

Credit Suisse Bank (referred to as Credit Suisse) was established in 1856, initially as a banking institution to support the development of Swiss railways. Today, the bank manages assets exceeding $1.1 trillion, making it the world’s fifth-largest financial group. Notably, only 17 countries globally have a GDP surpassing this figure.

The Credit Suisse Crisis Unfolded:

On March 14, Credit Suisse postponed the release of its 2022 annual report and disclosed a financial crisis, becoming the catalyst for market panic. One of the Big Four accounting firms, PricewaterhouseCoopers (PwC), issued a disclaimer of opinion, and simultaneously, major shareholder Saudi National Bank declined to inject additional funds. On March 15, Credit Suisse’s stock price plummeted by 13.9%, reaching a historic low. The 5-year Credit Default Swap (CDS) spread also hit a record high, with the last such high dating back to the Lehman Brothers bankruptcy. CDS, as a risk indicator, signifies heightened market concerns about default risk as its value increases. To stabilize market sentiment, on March 16, Credit Suisse obtained liquidity support of 50 billion Swiss Francs from the Swiss National Bank, temporarily halting the decline in its stock price. Finally, on March 19, Credit Suisse was acquired by Credit Suisse Group through an all-stock transaction, calculated at a nearly 40% discount to its recent market value, amounting to approximately $3.2 billion. In terms of bond disposition, Credit Suisse’s announced value of approximately $17.2 billion of AT1 bonds will be fully written down, resulting in significant losses for AT1 bondholders. To ensure financial industry stability, the Swiss government guaranteed 9 billion Swiss Francs for Credit Suisse, and the Swiss National Bank provided a 100 billion Swiss Franc liquidity assistance loan.

The Real Causes Behind the Credit Suisse Crisis!

The Credit Suisse crisis did not suddenly erupt but, in fact, several signs over recent years gradually revealed this problem. Since 2021, Credit Suisse has been embroiled in a series of risk events, leading to operational challenges and significant performance declines. In 2021 and 2022, its operating income decreased by 19.6% and 25.1% year-on-year, mainly attributed to flaws in internal controls and risk management mechanisms, resulting in frequent risk events. For example, the Archegos meltdown event on March 26, 2021, directly caused Credit Suisse losses of approximately $5.5 billion, while the Greensill collapse event in March 2021 led to direct losses of $3 billion. Additionally, Credit Suisse faced allegations related to the Mozambique corruption case from 2013 to 2016. In February 2022, Credit Suisse was accused of providing money laundering assistance to criminal clients, including oligarchs, drug traffickers, and human traffickers, resulting in the leakage of data of 18,000 clients and implications of criminal activities. In the current super-hiking interest rate cycle, financial risks have become increasingly apparent. The Credit Suisse crisis, similar to the Silicon Valley Bank, faces liquidity risks exacerbated by interest rate hikes, deposit outflows, and unfavorable operating conditions. The Credit Suisse crisis is likely to serve as a microcosm of European risks.

The Outlook for the Credit Suisse Crisis:

The Credit Suisse crisis, along with the Silicon Valley Bank’s bankruptcy, are significant events in recent financial markets. Timely intervention by the Swiss government curbed the crisis’s spread, but the aftershocks could trigger a chain reaction, such as rising financing costs for European banks. The Silicon Valley Bank’s bankruptcy was caused by mismatches in the maturity of specific client entities, while the Credit Suisse crisis resulted from frequent risk events. On the surface, these two events may seem unrelated, but ultimately, they both stem from internal deficiencies that cannot withstand crises. The Federal Reserve’s excessive money printing over the past few years led banks to acquire a large amount of U.S. government bonds in an environment of excess liquidity. In March 2022, the Federal Reserve initiated aggressive interest rate hikes, causing banks’ assets to shrink, savings to flow out, and liquidity to tighten. The Federal Reserve claims that taxpayers do not bear the burden, but most debt restructurings occur through monetization, ultimately diluting the taxpayer’s responsibility. From the subprime crisis to the Silicon Valley Bank’s bankruptcy, the privilege of the U.S. dollar compels nations holding U.S. dollar reserves to foot the bill and face losses. This is a warning-worthy issue. In summary, the financial markets should closely monitor the exposure of European and American banks to risk, as well as the potential impact of the U.S. dollar privilege on the global economy. For ordinary people, these intangible factors have already become a part of everyday life, with continuous increases in prices, inflation, and real pressures.