Although Credit Suisse's share price dropped below the two-franc mark for the first time, the crisis engulfing the bank is being met with nonchalance in Switzerland, as finews.asia discovered. Still, nobody seriously wants to discuss the liquidation of the systemically important bank.
What would you rather have: a loaf of bread, an energy drink, three apples, or a share of Credit Suisse? Journalists from the «Blick TV» (in German) channel posed the question to passers-by on the street. It shows a certain degree of nonchalance in viewing the crisis embroiling Switzrand's second-largest Swiss bank, especially since its current stock price of 1.68 Swiss francs won't buy you a lot of bread.
Following a statement from major shareholder Saudi National Bank (SNB), Credit Suisse's stock price fell as much as 30 percent in Wednesday trading and dropped well below two francs for the first time. The announcement by the Saudis they wouldn't inject more capital into the bank for regulatory reasons was cited as the reason for the selloff. According to media reports, trading had to be temporarily suspended.
«Blick TV» is not alone in its reporting of the situation in this manner. On the same day, the commuter paper «20 Minuten» (in German) quoted an author who claimed to have predicted the demise of Lehman Brothers saying the demise of Credit Suisse is imminent.
Savings Drains Away
The impact of such reporting on the Swiss business should not be underestimated. Credit Suisse bankers have been complaining for months about how sensitively Swiss retail customers in particular react to social and mass media reports. While proving a link is difficult, in its Swiss home market, for years the rock of the ailing bank, Credit Suisse not only lost assets under management last year but billions in savings deposits.
As can be gleaned from its annual report published yesterday, in addition to net asset withdrawals of 5.4 billion francs from the «Swiss Bank» in 2022, savings deposits of almost 18 billion francs have migrated elsewhere. The newspaper «Tages-Anzeiger» (in German, behind paywall) reported an even significantly higher outflow of deposits amounting to 51 billion francs, showing last year was a bruising one in its home market.
The Credit Suisse Effect
The banking group admitted in its annual report it was unable able to stop the outflows to date. After the crash of its stock price on Wednesday, customers will likely take further money out of Credit Suisse.
Those funds are flowing to both retail and private banking competitors in Switzerland, with some firms openly reporting the inflows. Raiffeisen Switzerland CEO Heinz Huber told finews.asia that liquidity moved from Credit Suisse to the cooperative bank last fall. Management at private banks Lombard Odier and J. Safra Sarasin also spoke openly about the «Credit Suisse effect.»
Leave it Alone
In the same breath, they said the situation at Credit Suisse was hurting the Swiss financial industry. Nevertheless, leading institutions, supervisory authorities, and the federal government have so far largely stood by and watched the systemically important bank writhe in agony. Former Finance Minister Ueli Maurer summed up the attitude in December when he recommended Credit Suisse be «left alone for a while.»
But things have hardly been quiet since then. On the contrary, the development is at best acknowledged in Switzerland, and not infrequently greeted with derision.
Seemingly lost in the turmoil is that Credit Suisse is a systemically important institution that is in dire straits. It can by no means be in the country's best interest for it to deteriorate further, even though it isn't a restructuring case yet. Given the billions of outflows, the bank had to temporarily activate liquidity buffers last fall. At the end of last year, it was considered sufficiently capitalized with a common equity tier 1 (CET1) ratio of 14.1 percent, above the ten percent regulatory minimum in Switzerland.
Uncertainties Abound
Chairman Axel Lehmann touched on the topic at the margins of an investor conference where we said state aid is not an issue for the institute.
Even so, the Swiss public has been actively discussing the possibility of such aid for some time, although there are no concrete indications this will transpire. Shoring up a bank with taxpayers' money has been tried before and has the advantage of being successful at competitor UBS in 2008. The resolution of a systemically important bank according to the too-big-to-fail criteria has never been carried out. According to those knowledgeable about Swiss regulations, there are many imponderables in the event of an emergency.
This much is certain: such a scenario would be no joke.
