Credit Suisse was one of the biggest banks in the world and as we all saw days after the two U.S. now credit sues got into trouble if you look at the magnitude of This disaster it will blow your mind this is what the share of Credit Sues look like ever since their Peak 16 years ago in 2007 credit sues has 99 of its share price and while writing this article it was hovering around 0.86 Swiss France and mind you credit sues or Signature Bank it was the second Swiss bank that at one point contained 1.3 trillion Swiss Franc in deposits and in spite of it being taken over by UBS even now there is a lot of panic in the market because we are looking at a banking crisis in not one but two continents in the world. So this begs the question of what led to the fall of credit suisse where did the economics go wrong? how will this affect the Indian economy?
To understand the Credit Sues crisis we track their total assets since 2005 and in that year they had 1.3 trillion Swiss Francs in deposit which is about 1.4 trillion US Dollars and from there onwards it steadily declined to 818 billion in 2020 and then there was a steep drop to just 531 billion in 2022 that is about 573 billion dollars and what this tells us is that Credit Sues recent disaster started way before the U.S. banks collapse way before the Russia Ukraine war and even before the pandemic so the question is what exactly happened from 2005 onwards that credit sues went down from a trillion dollar company to geting close to bankrutcy well this is where you need to understand there are four streams of Revenue in these four strems that the first Stream was wealth management this is the most important division that generates 37 % of its Revenue the second stream of income from the Swiss bank which is just like any other regular Retail bank in Switzerland but it is super important because it generates 32 percent of bank’s Revenue the third division is its invesment Banking division that contributes to about 15 percent of the bank’s revenue and the last division is the asset management division now initially these branches were doing very well and if you see they were making billion of dollars in profits every single year but if you look at this graph you will see tha credit swies had specially allocated billions of dollars only for litingation expenses every single year this means billion of dollars was spent in case of filings code fees arbitration fees witness fees and attorneys the question is why the held it credits you spend so much money in just litigation well this is where the Dark Side of credit swies come in……
To tell you about it in 2014 Credit Sues was fined 2.6 billion and pleaded guilty to helping Americans evade taxes for decades then in 2017 it was the biggest settlement year having to pay more than 5 billion dollars to settle with the U.S. authorities over claims that it misled investors in residential mortgage-backed securities that it sold in the run-up to the 2008 financial crisis than in 2019 credit sues was caught in a corporate Espionage Scandal where a group of executives was later found to have ordered private detectives to track two outgoing executives this triggered a regulatory investigation and it’s then CEO Mr lithium stepped on from his position in 2020 so for the past one-decade credit sues has constantly found itself in trouble with regulators but even then nothing happened because the bank was extremely profitable and it could easily pay the fines and despite their repeated scandals millionaires and billionaires of the world and even the corporates of the world continue to see credit sues as a reliable Banker so as long as their customers had confidence in them credit sues could still make billions of dollars every single year in spite of the litigation but but but all of this changed when credit swies got involved into two high profile disasteers which are greensill capital and Archegoes capital management.
To put that straight Credit Sues saw a 5.5 billion dollars loss due to its risky exposure to the U.S. risky capital management which collapased in 2021 but even worse was green sill crerdit Sues was a major backer of green seal capital and this capital sold bonds to their high net worth wealth management client saying that they were almost risk free bond but in 2021 Gree sill collapsed and credit sues was forced to suspend 10 billion dollars of investor funds and after this incident the rich deposite is at credit sues got frustrated so throughout 2022 the wealthy clinent started pulling their money out of credit shoes and as we saw asset management was is the highest business management business so when that decreased by 27 percent from 740 billion of sues France in the fourth quarter of 2021 to just 540 billion in 2022 it was a huge setback for credit sues and the icy on the cake were the rumor that the bank was shutting down so all of this put togther caused the outflow of almost 100 billion Swiss Ffrancs in the last quarter of 2022 itself and this is quite understandable if you are a millionaire with 10 billion dollars deposited and managed by credit sues even if you think there is one percent change of the bank completely failing you would immediately pull all your money out and move it to a competitor bank is not it well this is exactly what the depositor of credit sues did and this is where the bank started derailing in every single quarter of 2022 the reported net income was negative after adjusting for litigation charges and credit sues reproted a pre tax loss of 3.3 billions Swiss Francs which is about five times the jump rom their losses of 600 million in 2021 and guess what just when everybody thought things could not get any worse the final nail in the coffin came in with the U.S, bank failure including the silicon valley bank and when this happened the panning in the market snowballed and it sent jutters down the spines of all credit used depositors and investors this is the reason why if you look at the number it is absolutely terrible.
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