'Second Lehman' Warning Light... Credit Suisse Could Be Sold in Worst Case Scenario

Europe's Largest CS Liquidity Crisis Global Shockwave

After the bankruptcy crisis of Silicon Valley Bank (SVB) in the United States was settled, a liquidity crisis erupted at Credit Suisse (CS), Europe's largest investment bank (IB). Some warn that this could send shockwaves to the global financial market similar to the second Lehman Brothers crisis. How will the CS crisis unfold, and how will the global financial market respond accordingly? Foreign media have broadly divided the CS crisis scenarios into three categories: 'short-term crisis averted by government bailout,' 'high-intensity restructuring such as IB division spin-off,' and 'merger and acquisition (M&A) by competitors like UBS.'

According to major foreign media on the 15th (local time), the Swiss National Bank (SNB) and the Financial Market Supervisory Authority (FINMA) announced in a joint statement that they would guarantee the liquidity stability of CS, which is facing a default crisis. CS's stock price plunged as much as 30% intraday, triggering a chain reaction of sharp declines in major European and American bank stocks, rapidly spreading the crisis throughout the financial sector, prompting an emergency response.

The sharp drop in CS's stock price was triggered by the discovery of 'significant weaknesses' in accounting in the recently released 2022 annual report, which heightened financial concerns, coupled with the largest shareholder, Saudi National Bank Chairman Amar Al-Khudairi, stating that 'there are no plans for additional liquidity support.' CS's stock closed down 14% compared to the previous session, falling more than 90% from its peak.

Swiss financial authorities assess that CS's liquidity situation is not currently at its worst. The two institutions stated, "The value of CS's stock and debt securities has been affected by market reactions over the past few days (due to the SVB crisis)," judging that the fear caused by SVB's bankruptcy pulled down stock and bond prices. They believe that an emergency capital injection from financial authorities could temporarily extinguish the urgent fire. They also stated, "Supervisory authorities are sharing all information closely with the bank and have confirmed that CS meets capital and liquidity requirements."

The Wall Street Journal (WSJ) and others reported that as pessimism spread that CS might not overcome the crisis due to the aftermath of SVB's collapse, Swiss financial authorities are expected to soon announce specific follow-up measures to dispel such concerns.

Octavio Marenzi, CEO of Optimus, a capital market consulting firm based in Boston, U.S., said, "(The Swiss financial authorities') lifeline to CS is inevitable," adding, "They are aware that if CS falls into default or a deposit payment incapacity crisis, Switzerland's reputation as a financial hub will be severely damaged."

[Image source=AFP Yonhap News]

Within the industry, there is also speculation that CS may undertake restructuring at a level tantamount to corporate dismantling. JP Morgan diagnosed 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 IB division sales are among several options.

Bloomberg reported, "CS is trying to end its 30 years of efforts competing on Wall Street by spinning off its IB business."

Experts predict that if the situation worsens, CS could be put up for sale in the M&A market. One scenario is that financial authorities purchase CS's shares and push for a third-party sale. In this case, foreign media say 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 funds raised to cover restructuring costs for the remaining divisions.

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

This content was produced with the assistance of AI translation services.