Credit Suisse, one of Switzerland’s leading financial institutions was founded in 1856, was among a group of 30 banks known as globally systematically important, and a full collapse might have devastated the global financial system. Despite its long history, Credit Suisse was plagued by a series of scandals, management shifts, and significant losses in recent years.
In 2020, Credit Suisse’s then-CEO, Tidjane Thiam, resigned after a 2019 spying scandal. Credit Suisse’s wealth management boss, Iqbal Khan, left for UBS and was subsequently accused of poaching clients from Credit Suisse.
In 2021, amid the pandemic, the collapse of the U.S. family investment fund Archegos Capital and British finance firm Greensill Capital triggered a pretax loss of close to $1 billion for Credit Suisse. Following the collapse of Archegos, Credit Suisse’s investment bank CEO and chief risk and compliance officer left the company.
Months later, in January 2022, Chairman Antonio Horta-Osorio resigned from the bank’s board after about nine months in the position over a scandal related to his breaching of Swiss and British COVID-19 quarantine protocols.
By late summer 2022, new CEO Ulrich Koerner unveiled a strategic review that was hindered by an unsubstantiated rumor that Credit Suisse was facing an impending failure. This prompted clients to pull 110 billion CHF (about $119 billion) of funds in the final quarter of 2022.
Facing a stock that shed about three-quarters of its value in a year, Credit Suisse announced plans in early 2023 to borrow up to $54 billion to shore up liquidity and boost investor confidence. However, by mid-March, the bank’s top backer, Saudi National Bank, said it would not give more money to Credit Suisse as a result of regulatory barriers.
The final nail to the coffin was the collapses of US banks Silicon Valley Bank and Signature Bank in early March 2023.
The 167-year-old history of the Swiss bank Credit Suisse came to its conclusion at a hockey stadium in the north of Zurich with the bank’s last chairman, Axel Lehmann, told nearly 2,000 angry shareholders that he was “truly sorry” for the storied institution’s collapse.
Other than shareholders who saw their Credit Suisse shares turn to ashes, investors in UBS products are not spared either. More than $17bn in high yield bonds called AT1, issued by Credit Suisse became virtually worthless last month, following a controversial decision by Switzerland’s financial regulator. Asian high-net-worth investors, including clients of Credit Suisse’s own private bank, were among the holders of these bonds.
The AT1 bonds were attractive to many wealthy individuals because the securities offered high returns and were issued by well-known institutions, including some of the world’s largest banks. Credit Suisse committed to pay investors 9.75% in annual interest when it sold a $1.65bn AT1 bond in June 2022. The Credit Suisse bonds were distributed by many American and European financial institutions.
Things turn for the better in April
In April, the bank contagion fears started to ease as no major banks asked for help, thanks to the measures put into place by central banks around the world. With the economy outlook looking shaky after the banking crisis, investors started to bet on early rate cuts. While the banking shares took a nose dive, the Nasdaq entered a bull market, up over 20% from its December low, though it still has quite a hill to climb after its fall from it's peak in 2021.
In a private meeting with US lawmakers where Fed Chair Jerome Powell was asked how much further will the Fed hike rates, he pointed to the recent dot plot which forecasted 1 more rate hike and no rate cuts in 2023. Investors are starting to predict rate cuts, if the economy suddenly turn for the worse, as inflation pressures continue to ease.
Portfolio Strategy
The general market direction for March has been flat as the reverberation of the banking crisis continues to dampened the stock market, even though hopes of a possible early termination of rate hike has helped to put a floor to the losses. The portfolio is generally flat, with the exception of CPFIS as the main US fund - Franklin US Opportunity fund has a large proportion of the fund invested into technology stocks, which also made it suffer more during 2021 when Tech stock fell.
Remember in the previous newsletter, I mentioned that bad news might be good news for the stock market? This is what is happening right now, and if things got bad enough to convince the US Federal Reserve to stop their rate hike, this will lead to a bout of optimism for the stock market accelerating its recovery.
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