Credit Suisse is definitely sinking into the crisis.
The emergency plan, launched in October, already seems to be far away, as the bank's difficulties do not seem to want to go away.
It's the opposite. You only have to look at the stock market to understand that the road to redemption is and will be long, very long.
Credit Suisse (CSGKF) shares fell 4% in the February 21 trading session to 2.66 Swiss francs, a closing low since at least 1985, according to FactSet. Share prices even fell to 2.62 Swiss francs in session.
At present, the market value of the bank, which was once a European financial flagship, is less than that of the Coinbase (COIN) cryptocurrency exchange. Credit Suisse has a market capitalization of $11.5 billion against a market value of $16.3 billion of the cryptocurrency platform, founded in 2012 to disrupt the financial services industry, using Blockchain technology. Credit Suisse was founded in 1856.
Outflaws
Even in the worst moments of the 2008 financial crisis, Credit Suisse shares did not trade at these prices.
If the stock market rout is due to numerous scandals and questions about the firm's ability to recover, the rout of Feb. 21 is due to a report that the Swiss financial regulator (FINMA) is reviewing statements made by Axel Lehmann, the Chairman of the Board of Directors, last fall.
At the time, Credit Suisse was facing a massive withdrawal of funds from its wealthy clients of the Wealth Management division, on which the "New Credit Suisse" is centered. These customers were worried about the financial health of the group around which there were many speculations and rumors.
These outflows raised the question of the bank's future profitability, because if Credit Suisse does not have enough assets to manage, its fees will undoubtedly decrease.
To reassure its clients and the markets, the bank had attempted a transparency exercise by announcing on Nov. 23 that its customers had withdrawn around $88 billion between Oct. 1 and Nov. 11.
A few days later, on Dec. 1, Lehmann told a conference that customer outflows were not continuing. On that day, he asserted to the Financial Times that, after strong outflows in October, the outflows had "completely flattened out" and "partially reversed".
The following day, he told Bloomberg Television that outflows "basically have stopped.” That day of Dec. 2, the stock jumped by 9.3%.
The purpose of these statements was to signal to investors and to the markets that the worst may have been over as things were stabilizing. Except that, when Credit Suisse announced its annual results and the fourth quarter results of 2022, the bank reported 110.5 billion Swiss francs ($119.65 billion) in withdrawals from customers during the last three months of the year. This suggests that customer withdrawals were continuing at the time of Lehmann's statements.
What Did Lehmann Know?
"As previously disclosed, Credit Suisse experienced deposit and net asset outflows in 4Q22 at levels that substantially exceeded the rates incurred in 3Q22," the bank said in its quarterly earnings. "Approximately two thirds of the net asset outflows in the quarter were concentrated in October 2022 and had reduced substantially for the rest of the quarter."
It also said that the outflows "had not reversed."
According to Reuters, the Swiss financial regulator "is seeking to establish the extent to which Lehmann, and other Credit Suisse representatives, were aware that clients were still withdrawing funds when he said in media interviews that outflows had stopped."
Regulators want to determine whether Lehmann misled investors. Basically, did he know that the withdrawals were continuing at the time of his declarations? Was he briefed by other executives?
"FINMA has no comment on this matter," a spokesperson said in an emailed statement.
"We’re declining to comment," said a Credit Suisse spokesperson.
The investigation of the Swiss banking regulator falls very badly for the bank which tries to convince the markets that it can execute its last chance plan. At best, it's a distraction the business doesn't need when it has to focus all of its resources on recovering.
