All parties involved have so far denied that the US had any influence over the downfall of Credit Suisse. But muula.ch has uncovered the truth.
It was a bizarre situation at that historic press conference on the collapse of the crisis-stricken bank Credit Suisse (CS).
Both the French-speaking President of Switzerland, Alain Berset, and the German-speaking Finance Minister, Karin Keller-Sutter, repeatedly spoke in English, even though there are actually four other official languages in Switzerland.
Impetus came from the US
The situation almost seemed as if the Swiss officials were looking into the cameras and saying to their English-speaking ‘clients’: you can rely on us. You don’t even need to wait for a translation.
One person in particular seems to have been addressed. That was the former head of the US Federal Reserve and current US Treasury Secretary, Janet Yellen.
She may well have provided the impetus for the CS disaster, as research by muula.ch has now revealed.
Shocking content
The starting point for CS’s downfall must be taken at February 14, 2023. On that date, the US subsidiary of the crisis-stricken bank reported its annual financial statements as of December 31, 2022, to the Board of Governors of the Federal Reserve System.
CS has now posted the information somewhat hidden under “further information” on its website, and the public is likely to be just as shocked by those results as the US central bankers were at the time.
The annual results for the US subsidiary Credit Suisse Holdings (USA), Inc. showed the surprising loss of over 9 billion Dollars.
This set off alarm bells among the lower echelons of the US administration.
According to that report from mid-February, the remaining equity capital of CS’s US arm plummeted by around 40 percent to just 13.2 billion Dollars.
In addition to the tax write-off
A closer look at the figures shows that the high deficit for CS’s US operations is mainly due to a goodwill write-off of almost 5 billion Dollars, as can be seen in item 7.c.(1).
However, it is also apparent that US investment banking generated only 1.2 billion Dollars in fees and commissions, while the company’s payroll expenses alone amounted to 2..2 billion Dollar. Salaries were therefore around 1 billion Dollar higher than revenues in that region.
Furthermore, that goodwill write-down should not be confused with the well-known billion-dollar impairment of deferred tax assets, which caused a real stir and resulted in billions in losses at the group level in the third quarter of 2022.
At that time, the strategy adjustment by the new CS management team led by Chairman Axel Lehmann and CEO Ulrich Körner had resulted in the US write-down of tax credits.
Still irrelevant at group level
This new local goodwill write-down in the US now posed an additional problem, as several auditors independently confirmed to the business news portal muula.ch.
However, goodwill, which normally arises from acquisitions, was not yet an issue at CS group level. There were still enough “positive” transactions that counteracted a write-down in the overall group when tested for impairment.
However, in its annual report for the entire group, published on March 14, 2023, CS stated that only 23 million Dollar in goodwill impairment resulted at the group level, but that the coverage of the values was hanging in the balance.
CS battle plan hatched
With all this bad news, it is easy to imagine what US Treasury Secretary Yellen did when she learned a few days later through her hierarchy about CS’s billion-dollar loss in her country.
The image of Switzerland’s systemically important big bank was already tarnished, liquidity outflows were high, and the share price, which actually represents the company’s value, had hit rock bottom. In the US, nerves were already on edge due to a mounting number of US bank failures.
Yellen picked up the phone and called her Swiss counterpart, the new finance minister Keller-Sutter, who actually had no idea about big banks.
During their conversation, the two finance ministers probably hatched a battle plan for the mega-merger, because even lower-level officials in the US administration were surprised, according to the Swiss expert commission on the collapse of CS, that the resolution plans for systemically important banks, which had been worked out over many years, were not applied.
Swiss Unit profitable
According to these plans, CS had solemnly promised that, in the event of a capital shortage at its US subsidiary, the Swiss bank would have to send sufficient funds overseas from its headquarters in Zurich. Yellen needed a solution for the US, in particular.
According to the annual reports, all other CS businesses were in the black: in the UK, CS posted only a small loss of 300 million Dollars in 2022.
And the Swiss unit of CS even posted a mega-profit of around 1.2 billion Dollars, as the other individual financial statements did show.
Ideal solution for America
However, new capital for the US was a problem for the crisis-stricken bank CS, because its headquarters in Switzerland had only just managed to secure a capital increase with the Saudis from the Saudi National Bank, and the Swiss Financial Market Supervisory Authority (FINMA) had, strangely enough, resisted a higher increase in oil funds for the struggling big bank.
Then Yellen and Keller-Sutter agreed that Switzerland had to solve the problem.
The plan ended in an emergency merger of the crisis-stricken bank with UBS, which has a strong presence in US business and was an ideal complement to the crisis-stricken part of CS in the US. It was also convenient that this meant there would be one less foreign competitor in America in the future.
However, an emergency situation was also needed to enable the Swiss authorities to take action, and this was instigated by the US.
Multiple attacks
CS was already under pressure on the capital markets during those turbulent days. Therefore, minor triggers were sufficient to provoke a bank run and enable the Swiss authorities to take decisive action under emergency law.
The main paragraph for this was 184 – notably the paragraph that regulates Switzerland’s relations with other countries.
According to reliable information, Keller-Sutter, who in emergency situations is in any case above the Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA) according to a memorandum, urged the supervisory authority for the Swiss capital market to investigate statements made by CS Chairman Lehmann regarding liquidity.
As is well known, the investigation amounted to absolutely nothing. So, something else had to be done.
SEC asked trivial questions
The decisive impetus for the ‘bank run’ then came from the US.
On March 8, 2023, the US Securities and Exchange Commission (SEC) asked the crisis-stricken bank completely irrelevant questions about cash flows for the 2019 and 2020 financial statements.
However, these questions fueled extreme uncertainty on the capital markets and prompted CS to postpone the publication of its annual report – scheduled for the following day – indefinitely.
CS then saw right through the Americans’ smokescreen and, a few days later, on March 14, 2023, published its 2022 annual financial statements, the results of which were already largely known on February 9, 2023.
Repurchase of bonds
However, the SEC’s inquiry did set the ball rolling for a bank run.
The following night, at CS’s request, Switzerland granted around 50 billion Swiss francs in liquidity assistance, which the struggling bank seriously wanted to use to buy back its own bonds because it could make an enormous profit by doing so, as the market value of its own debt securities had plummeted.
Anyone on the brink of collapse would probably not have planned such a thing. But CS and its executives were completely oblivious.
“Not a bailout”
At the time, the major bank did not consider its own demise. These events also explain why the SNB did not provide CS with unlimited liquidity in the days that followed, as the Swiss National Bank should have done.
According to media reports, CS management around Lehmann and Körner resisted the takeover plans by rival UBS in the days that followed, right up to the historic press conference on March 19, 2023.
Then, however, the Swiss finance minister put her foot down and the demise of the major bank CS was sealed.
“It was not a bail-out,” Keller-Sutter said in English at the historic media briefing on the disappearance of CS, meaning that there was no rescue by the state.
A translated interpretation, however, probably meant to the US Treasury Secretary:
“Janet, everything is okay, I delivered.”
September 25, 2023/kut./ena.
