Switzerland’s role as banker to the world’s rich was built on a reputation for institutional discretion and dull reliability. That only made the scandals, public legal battles and mounting losses at Credit Suisse Group AG more striking and hard to comprehend. In March, a slow-burn crisis turned into full-blown panic, clients ran for the door and the Swiss government swooped in to arrange a hasty takeover by local rival UBS Group AG. Thus an icon of Swiss financial prowess that was established in the mid-19th century and rose to become one of the world’s 30 systemically important lenders was no more. 


Credit Suisse’s failings included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media. Its willingness to engage with clients that some other banks avoided, such as disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management, lost it billions of dollars and compounded the sense of an institution that didn’t have a firm grip on its affairs. Many fed up customers voted with their feet, leading to unprecedented client outflows in late 2022. The loss of business was especially dramatic in Asian wealth management, which for many years had been an important source of profit growth. 


Chief Executive Officer Ulrich Koerner launched a massive outreach to woo back nervous clients and their cash. The effort appeared to be paying off by January, when it reported “net positive” deposits. However, on March 9, the U.S. Securities and Exchange Commission queried the bank’s annual report, forcing it to delay its publication. Panic spread after the failure of regional U.S. lender Silicon Valley Bank underscored how higher interest rates were eroding the value of the banking industry’s bond holdings. Investors began ditching anything that smelled of banking risk and deposit flight. 


Credit Suisse stock slumped as much as 31 per cent on March 15 when the chairman of its largest shareholder, Saudi National Bank, ruled out investing any more in the company. This prompted Credit Suisse to ask the Swiss central bank for a public statement of support. The cost of insuring the bank’s bonds against default for one year surged to levels not seen for a major bank since the global financial crisis of 2008. Aware of the potential economic fallout if Credit Suisse collapsed, the central bank offered to lend it as much as 50 billion Swiss francs ($54 billion) and buy back up to 3 billion francs of debt. This bought Swiss authorities a little time to find a more sustainable solution. Over the following weekend, they forced the bank into the arms of its local rival UBS for about US$3.25 billion — less than half its market value when the shares closed the previous Friday. 


Credit Suisse’s crisis came shortly after the failure of three U.S. regional lenders and underscored how some less well-managed financial institutions have struggled since the era of rock-bottom interest rates came to an end. Its demise may push other banks to lower their risk profile, which means issuing fewer of the loans that enable economies to grow. That would make it harder for central banks to keep raising benchmark rates to cool red-hot inflation without causing recessions. Investors have been abandoning bets on more rate hikes and now see US rate cuts coming as early as the summer. European Central Bank President Christine Lagarde said on March 16 that the financial market turmoil could hit credit conditions and dampen confidence. However, she said the banking sector was “in a much, much stronger position than where it was back in 2008.” 

--With assistance from Irene García Pérez, Low De Wei, Christopher Anstey and Zimri Smith.