'Preventing a Swiss Lehman Crisis'... Credit Suisse Receives Emergency Injection of 70 Trillion Won

Credit Suisse (CS), Europe's largest investment bank (IB) facing a liquidity crisis, has agreed to receive emergency funding of up to 70 trillion won from Swiss financial authorities. This decisive injection of funds came less than a day after CS requested rescue amid liquidity constraints. Following the collapse of the U.S. Silicon Valley Bank (SVB), concerns over CS's bankruptcy have intensified, and this move is interpreted as an early effort to contain the spread of a second Lehman moment fear.

According to major foreign media on the 16th (local time), CS announced that it had agreed to borrow up to $54 billion (approximately 70.74 trillion won) from the Swiss National Bank (SNB), Switzerland's central bank. This decision came just hours after SNB and the Financial Market Supervisory Authority (FINMA) jointly announced their liquidity support plan for CS the previous day. Foreign media reported that this makes CS the first major global bank to receive official funding support since the 2008 global financial crisis.

Amid ongoing instability in global financial markets following the SVB collapse, CS's stock price plunged as much as 30.8% intraday the previous day. Subsequently, major bank stocks in Europe and the U.S. experienced a chain reaction of sharp declines, showing a rapid spread of the crisis throughout the financial sector. The sharp drop in CS's stock price was triggered by the discovery of significant accounting weaknesses, including internal control deficiencies, in the recently released 2022 annual report, which heightened financial concerns. Additionally, the largest shareholder, Saudi National Bank Chairman Amar Al-Khudairi, stated that there were "no plans for additional liquidity support," which further fueled the decline.

The authorities' decision to inject funds also indicates that CS's current financial situation is "not the worst." Officials believe that emergency funding to overcome the short-term crisis reduces the risk of bankruptcy. Previously, authorities noted that "the market value of CS's stock and debt products has been affected by market reactions over the past few days (due to the SVB incident)," diagnosing that the panic following SVB's collapse dragged down CS's stock and bond prices.

[Image source=AFP Yonhap News]

Within the industry, it is being considered that CS, having averted the crisis through this funding, may undertake a high-intensity restructuring tantamount to corporate dismantling. JP Morgan predicted that financial authorities are likely to guarantee deposits in CS's retail banking and asset management sectors while moving to sell off the IB division. Citing sources familiar with internal affairs, JP Morgan said that full deposit guarantees and the sale of the IB division are among several options. Bloomberg News evaluated that "CS is ending its 30 years of efforts competing on Wall Street by splitting off its IB business."

Experts foresee that if the situation worsens, CS could be put up for sale in the M&A market. One scenario involves financial authorities purchasing CS's shares and then seeking a third-party sale. In this case, foreign media suggest that acquisition by local competitor UBS is highly likely. There are also speculations that UBS might sell part of its stake in CS's retail banking division and use some of the proceeds to cover restructuring costs in other divisions.

Founded in 1856 to finance Swiss railway and electrical construction projects, CS entered retail banking in the early 1900s and expanded its business through active M&A in the IB sector starting with the acquisition of First Boston in the 1990s.

Meanwhile, awareness of the growing crisis amid the cascading turmoil in global financial markets is increasing. Nouriel Roubini, professor emeritus at NYU Stern School of Business who predicted the financial crisis, warned in an interview with Bloomberg TV that "CS's crisis could trigger a 'Lehman moment' in Europe and global markets."