Switzerland rewrites history on the downfall of CS

The Logo of Credit Suisse in Zurich
The Federal Council publishes explosive details on the demise of Credit Suisse. (Image: muula.ch)

The Federal Council has presented its report on Credit Suisse. However, the events leading to the bank’s demise are described in a different way.

On 339 pages – plus additional documents – the Swiss government explains why the crisis bank Credit Suisse (CS) went under and why the emergency merger with other major bank UBS was necessary.

But anyone who delves into the details will once again find it hard to believe their eyes.

Insolvency earlier

Page 61 of the main report contains the all-important sentence.

“After exhausting the ELA capacity, the SNB granted Credit Suisse additional liquidity assistance in the amount of 20 billion Swiss francs on March 17, 2023 on the basis of ELA+, without which Credit Suisse would have become insolvent on March 17, 2023.”

This is a completely new detail, as it was previously stated that CS would only have been ‘threatened with insolvency’ on the following Monday if the Federal Council had not announced the emergency merger of CS with the major bank UBS on the previous Sunday.

“At this point in time, it was clear from all assessable facts that Credit Suisse was no longer able to restore confidence on its own and that without government measures it would face insolvency immediately after the weekend of March 18 and 19, 2023,” the Federal Council continued.

Misleading investors?

However, the statement that CS would have been insolvent the previous Friday without liquidity assistance of 20 billion Swiss francs leads to the conclusion that the last management of the crisis-ridden bank around Chairman of the Board of Directors Axel Lehmann and Group CEO Ulrich Körner certainly made mistakes.

So far, all that was officially known about this was that the reeling big bank had obtained around 50 billion Swiss francs from the SNB in the night of March 16, 2023 in exchange for collateral and even wanted to use it to buy back its own bonds.

You only do this if you can really afford it. At the time and in the weeks that followed, the Swiss National Bank (SNB) never said exactly how much liquidity it had made available to CS.

In the communiqué of March 16, 2023, CS CEO Körner, who now sits on the Group Executive Board of UBS, wants to continue implementing the crisis bank’s strategy and would have been bankrupt the next day. How can that be?

SNB and FINMA both wrong

In this respect, the situation now looks completely different.

“Credit Suisse received ELA+ in the amount of 20 billion Swiss francs on March 17, 2023 and a further 30 billion Swiss francs on March 20, 2023,” the Federal Council report clearly states.

However, SNB Vice Chairman Martin Schlegel, who is responsible for financial market stability, stated verbatim: “The solvency of CS was never in question,” as muula.ch also reported.

The Swiss Financial Market Supervisory Authority FINMA, on the other hand, maintained until the end that CS’s capital and liquidity ratios had ‘exceeded the prescribed values’ but that no bank in the world was equipped against a loss of confidence.

It only made statements on the earlier possibility of insolvency at the end of December 2023.

Date concealed

Another interesting aspect of the report is that it again mentions that FINMA approved the merger of CS and UBS instead of the Competition Commission Weko. However, the Federal Council report fails to state the exact date on which approval was granted, although the exact date is always stated for all other details.

At a media conference, FINMA revealed the date of approval of the merger as March 12, 2023, as reported by muula.ch.

This raises clear doubts that all options for the crisis bank were actually still on the table on CS’s doomsday Sunday, March 19, 2023.

FINMA reduced distributions

In general, the Federal Council also provides much more detailed information on all the measures FINMA tried out at CS.

FINMA carried out a total of 43 preliminary investigations for possible enforcement proceedings, issued 9 reprimands, issued 16 criminal complaints and concluded 14 enforcement proceedings (11 of which were against the institution and 3 against natural persons), it has now unfolded.

“With regard to risk management and the internal control environment, it ordered measures that intervened in the operational business in individual cases, such as temporary business restrictions or a reduction in distributions to shareholders,” the report continues.

Who would have thought that FINMA would have reduced the distribution of dividends to shareholders?

New owners during restructuring

Another exciting aspect is highlighted in the report and that is the option of restructuring that has been rejected. In this case, the bondholders of the AT1 bonds and convertible bonds would have become the new owners of CS.

It should be noted that these are predominantly Anglo-Saxon investors. Switzerland obviously had no interest in them. The regulations also only provide for the replacement of the Chairman of the Board of Directors – but not the Executive Board.

In the report, the Federal Council expresses its concerns that the same operational CS management on Monday would hardly be able to restore confidence.

People may have documents

Finally, it is also interesting that the Federal Council has withdrawn the exclusion of the public.

In the emergency ordinance, the Federal Council had excluded access to data and information in accordance with the Federal Act on the OAO in order to contain the risk that the flow of information between the parties involved would have been impaired, as muula.ch also reported.

However, with the revision of the ordinance on September 15, 2023, the Federal Council secretly deleted the exclusion of the FSA without replacement.

The national government was probably not happy about this, after all, the people are the ones who paid for the whole CS misery.


Switzerland rewrites history on the downfall of CS

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