Mar 15, 2023 - Economy

Why we should care about Credit Suisse's problems

Data: FactSet; Chart: Axios Visuals

Credit Suisse, the 167 year-old banking behemoth, is not a domino falling in reaction to bank failures in the U.S. — its troubles are of its own making, and have been cascading for over a decade. Still, its current dire predicament could hardly come at a worse time for the global financial system.

Why it matters: Credit Suisse is one of just 30 global financial institutions designated as being systemically important by the international Financial Stability Board. In other words, it's too big to fail.

By the numbers: Credit Suisse had total assets of $574 billion at the end of 2022 — down 37% from $912 billion at the end of 2020. Its asset-management arm supervises another $1.7 trillion in assets. Those numbers dwarf anything seen at Silicon Valley Bank, which had total assets of $212 billion.

  • Credit Suisse's assets are almost certainly lower today. The spectre of a messy nationalization looms over it, and clients have long been departing it for institutions seen as being much more stable.

Flashback: Credit Suisse has been scandal-prone for decades, with a long history of involvement in bribery, money laundering, tax evasion, corporate espionage, subprime shenanigans, and terrible risk management. (Archegos? Greensill? Credit Suisse was right in the middle of both of them.) The Guardian and Reuters have good summaries of how we got here.

  • Most recently, Credit Suisse's delayed annual report not only showed a loss of $8 billion — equal to roughly its entire market capitalization — but also revealed "material weaknesses" in its accounting for 2021 and 2022. Needless to say, that's not a good look for a global systemically-important bank.

Where it stands: Credit Suisse's largest shareholder, Saudi National Bank, said Wednesday that it can't provide any more capital because of regulations saying it can't own more than 10% of the bank.

  • Credit Suisse has reportedly asked the Swiss central bank and the Swiss banking regulator to step in with a public show of support, but so far they've stayed quiet.
  • "The European Central Bank debated the pros and cons of making a public statement to try and calm the waters, but as of Wednesday afternoon it had decided against doing so for fear of only adding to market panic," adds the Financial Times.
  • The U.S. Treasury is also reportedly keeping close tabs on the situation.

Between the lines: The balance-sheet problems that took down SVB are probably even bigger at Credit Suisse. While SVB bought mortgage bonds at 1.5% yields, big European banks were forced to buy sovereign debt at sharply negative yields.

  • Now that those yields have moved back into positive territory, it is certain that European banks are sitting on massive unrealized losses. But no one really knows how big the numbers are.

What they're saying: Credit Suisse is "too big to fail and too big to be saved,” says economist Nouriel Roubini.

The bottom line: Credit Suisse can't be allowed to fail. But the market is pricing in something pretty close.

Go deeper