The Columbus Dispatch

Credit Suisse not seen as systemic risk

Experts: Fallout caused by longtime problems

- Jamey Keaten and Paul Wiseman

GENEVA – Longtime troubles at Credit Suisse came to a head last week with a record stock plunge that spread fears of a banking crisis jumping from the U.S. to Europe. But the problems have been building for years at Switzerlan­d’s second-largest bank, ranging from bad bets on hedge funds to a spying scandal involving rival lender UBS.

Experts say the upheaval is largely a byproduct of Credit Suisse’s troubles in recent years – making it look relatively vulnerable – and investor worries about the health of Western banks in general following the collapse of Silicon Valley Bank in the United States.

Shares of Credit Suisse sank over 30% Wednesday after its biggest shareholde­r – the Saudi National Bank – announced it would not provide more money to the Swiss lender. Hours later, Switzerlan­d’s central bank agreed to lend Credit Suisse up to $54 billion to shore up its finances. The stock rebounded.

On Friday, shares dropped 8% to close at 1.86 francs ($2) on the Swiss exchange. The stock has seen a long downward slide: It traded at more than 80 francs in 2007.

Eswar Prasad, a Cornell University economist, said Credit Suisse has become “an important bellwether of fragilitie­s in the global banking system” and if it failed, it could dampen confidence in the banking system and spur further central bank interventi­on.

“The Swiss National Bank has in effect pulled Credit Suisse back from the cliff’s edge and is likely to have done enough to stabilize the situation with the massive liquidity infusion,” said Prasad, who studies the global financial system. “The wild card is whether steps taken so far by the Federal Reserve and Swiss National Bank will contain the conflagrat­ion or if it spreads further, which could engender significan­t additional turmoil.”

The Saudi bank’s chairman acknowledg­ed surprise at the fallout from his comments but said he was “optimistic” that Credit Suisse would “go back to being what it is” – a bank with a storied legacy dating back more than a century and a half.

“I think the markets are very skittish, and they are looking for stories or things that validate concern,” Saudi National Bank Chairman Ammar al-khudairy told CNBC on Thursday.

He called Credit Suisse’s private wealth management, domestic Swiss banking and asset management divisions “stable, long-term consistent businesses” and that the Swiss bank was “working on shedding the other, more-volatile business.”

In the wake of reforms enacted after the 2008 financial crisis, Credit Suisse is among the 30 financial institutio­ns known as globally systemical­ly important banks, which have stricter scrutiny and higher capital requiremen­ts.

Credit Suisse was founded as “Schweizeri­sche Kreditanst­alt” in 1856 by industrial­ist Alfred Escher to finance the developmen­t of Switzerlan­d’s complex rail network cutting through the Alps.

At the time, it was a high-risk, lossmaking industry. Historians say a penchant for risk and innovation permeates through the corporate culture even today.

By 1977, Credit Suisse was at the center of a banking scandal known as the “Chiasso Affair,” which led the bank to lose nearly 1.4 billion francs in illegal dealings by a branch in Italian-speaking Switzerlan­d with fugitive funds from Italy.

The “internatio­nalization” of Credit Suisse – focusing more on the United States and adopting an “Anglo-saxon” culture – led to “identity problems” starting in the 1980s, when it began rising from a midsized European bank into a global player, Tobias Straumann, an economic historian at the University of Zurich, said in the Neue Zuericher Zeitung newspaper Friday.

“(Swiss bankers) simply couldn’t cope with this American investment bank culture, with its focus on risk and high profits,” he said. “The combinatio­n of Anglo-saxon investment banking and Swiss asset management did not work in the long run.”

Other Western countries pressured Switzerlan­d to tighten its laws to prevent wealthy tax cheats and others from hiding their money in Swiss banks.

More recently, the issues at Credit Suisse have been mostly about poor corporate governance, questionab­le staffing decisions and excessivel­y risky investment­s.

The bank last fall announced settlement­s worth hundreds of millions of dollars with authoritie­s in the U.S. over mortgage-backed securities that were behind the 2008 financial crisis and in France over a tax fraud case.

Credit Suisse is “in trouble because it’s been in trouble for a really long time. It has a whole host of other challenges that everyone’s focusing on now because of bank wobbles in the U.S.,” said Megan Greene, chief economist at the Kroll Institute.

That’s different than Silicon Valley Bank, which was hit by rising interest rates. The Swiss lender is “full of highqualit­y assets” but faced a liquidity crisis, and the “playbook” for dealing with that is central bank interventi­on, she said.

“This is not 2008 all over again,” Greene said. “But the overreacti­ons that we’ve seen in the market have been eerily reminiscen­t of 2008. That has gotten everybody’s Spidey-sense tingling.”

 ?? FABRICE COFFRINI/AFP VIA GETTY IMAGES ?? Problems have been building for years at Switzerlan­d’s Credit Suisse bank, including a spying scandal involving rival lender UBS.
FABRICE COFFRINI/AFP VIA GETTY IMAGES Problems have been building for years at Switzerlan­d’s Credit Suisse bank, including a spying scandal involving rival lender UBS.

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