Swiss investment bank (IB) Credit Suisse (CS), which fell into a liquidity crisis, has overcome a critical moment with emergency funding from authorities, but the road to normalization remains long. An internal official who participated in the emergency meeting between Swiss financial authorities and CS management on the night of the 15th (local time) said, "The decision to support CS with up to 50 billion Swiss francs (about 70.3 trillion won) is merely a 'circuit breaker' (emergency plan)." Foreign media interpreted this as meaning that another liquidity crisis could reignite at any time.
The strong opposition from the merger parties to the government-led forced merger (M&A) scenario is for the same reason. UBS, which is exploring the forced merger of CS, cited "distrust in the IB-centered business structure that is incurring huge losses" as the reason for opposing the merger with CS. Foreign media also pointed out, "CS's fundamental problem lies not in the liquidity crisis but in the unprofitable business structure and operating environment." As net asset outflows and customer departures continue, the deficits in CS's core business units, IB and asset management, are increasing in real time.
Shareholders have pointed out that authorities and CS need to take more bold measures. A shareholder holding a large stake in CS warned, "Although the intervention of the Swiss National Bank temporarily eased CS's funding pressure, if structural problems are not addressed, another critical moment could arise in the coming months or within one to two years."
Market forecasts suggest that CS should undertake high-intensity restructuring equivalent to corporate dismantling. JP Morgan proposed the possibility that financial authorities might guarantee deposits in CS's retail banking and asset management sectors while selling off the IB division. Citing sources familiar with internal affairs, JP Morgan reported that full deposit guarantees and the sale of the IB division are among several options being discussed by authorities and CS. Bloomberg News evaluated, "CS is about to end its 30 years of efforts competing on Wall Street by spinning off its IB business."
Passing the national guarantee plan is another immediate hurdle. The day after the authorities' support decision, the Swiss Federal Council held an unscheduled meeting to discuss responses to the CS situation. At this meeting, the proposal for the state to guarantee CS was on the agenda, but major political parties showed significant disagreements.
The Swiss People's Party, the largest party in Switzerland, blocked the national guarantee plan citing the rationale of investor confidence damage. Switzerland legislated measures for handling insolvent banks after the 2008 financial crisis, and providing a national guarantee to CS could violate the law. Thomas Matter, a member of the Swiss People's Party leadership, argued, "The Swiss National Bank (SNB) is responsible for supplying liquidity to CS and has done so. However, extending a national guarantee is unacceptable."
The Social Democratic Party, the second-largest party, expressed support. While emphasizing the need to establish a plan for the state to be compensated for related costs if the national guarantee is formalized, they do not oppose the national guarantee plan itself. In Switzerland, seven ministers elected by the Federal Assembly for four-year terms form the Federal Council, which decides major policies by consensus or proposes them to the parliament. These two parties each hold two seats on the council.
Founded in 1856 as a lender for Swiss railway construction projects, CS entered retail banking in 1900 and expanded its business through active M&A in the IB sector starting with the acquisition of First Boston in the 1990s. However, amid a deteriorating operating environment due to the COVID-19 pandemic, CS suffered consecutive blows from the US Archegos incident, investment failures in the UK Greensill Capital which went bankrupt in March 2021, and repeated scandals, causing its performance and stock price to plummet.
Subsequently, the management changed to revitalize the atmosphere and announced a high-intensity restructuring plan, but financial concerns have intensified as "significant deficiencies" in accounting, such as inadequate internal controls, were found in annual reports over several years.
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