Credit Suisse’s collapse has sent shockwaves around the world – but why did it happen in the first place, and what might happen next?
Here’s what you need to know.
What just happened with Credit Suisse?
The Swiss bank was just bought by its rival UBS on Sunday, in an eleventh hour deal which valued Credit Suisse slightly above $3.15billion (£2.6 billion).
That’s a huge decline from the value Credit Suisse had on Friday, $8 billion (£6.55 billion) – showing that it had become a desperate situation over the weekend.
The country’s national bank – the Swiss National Bank – backed the buyout.
It said this was the best way to get financial markets back on side following a dramatic 24% drop in shares for Credit Suisse earlier that week.
It was also important to get a deal over the line before markets opened on Monday, to prevent panic among investors.
Why did Credit Suisse buckle in the first place?
Credit Suisse, founded in 1856, has always had a name for being a marker of stability within the banking sector.
It was Switzerland’s second biggest lender, and one of the top 30 most important banks in the world.
According to Swiss president Alain Berset, an “uncontrolled” collapse of the company could have had “incalcuable consequences” for the international financial system.
But, the bank made a loss in 2021 and again in 2022 (its worst performance year since 2008), and had warned it did not expect to be profitable until 2024.
Shares in the company also dropped by around two-thirds in 2022 as customers started to get cold feet.
On top of that, it has also struggled with money-laundering charges in recent years.
Then last Wednesday, the bank admitted it had found “material weakness” in its financial reporting.
A major investor, the Saudi National Bank, subsequently became spooked, and said it would not offer any more funds to Credit Suisse.
Other banks started to follow suit, prompting the 24% decline in its shares amid fears of a wider crisis like we last saw in the 2008 financial crash.
This meant the Swiss National Bank had to give Credit Suisse an emergency $54 billion lifeline (£44.5 billion) – but that wasn’t enough to increase shares again, leading to Sunday’s buyout.
Should we be concerned about a repeat of 2008?
The collapse has created an uneasy atmosphere within the banking sector, but some experts say there is not a general cause for concern.
As Switzerland’s central bank said, it was an “exceptional situation” and not indicative of what might happen to banks around the world.
Still, there have been consequences.
Although the regulators acted quickly, stock markets in the UK and Asia fell as a as a result of the buyout.
London’s FTSE 100 index – this is a list from the Financial Times of the 100 companies on the London Stock Exchange with the largest market value – was down 1.6% in early trading on Monday.
Japan and Hong Kong felt the ripples, too, while shares in UBS declined 12% after it acquired Credit Suisse.
The buyout also came shortly after two smaller US banks collapsed – Silicon Valley Bank said it needed to raise money to stay afloat, before folding, and Signature Bank then followed suit two days later.
SVB’s UK branch was bought up by HSBC for £1.
But, as Mark Yallop, former UK chief executive of UBS, told the BBC’s Today programme, that was a different issue related to rising interest rates.
He explained that Credit Suisse’s collapse “is a takeover of a challenged institution” which does not reflect “broader issues in the banking markets”.
He added: “I think this transaction will definitely stabilise [the bank] and should bring a good degree of confidence back to the banking market more generally.”
Not everyone is so convinced though.
Michael Hewson, chief market analyst at CMC Markets told PA: “With Credit Suisse shareholders and some bondholders taking a huge hit, banks in Asia have taken a hit on similar concerns about (some of their) bond-holding values, while the weekend deal still presents the Swiss National Bank and Swiss government with untold headaches, with the size of the newly merged bank set to dwarf the size of the Swiss economy.”
What does it mean for UK banks?
According to the Bank of England, the UK banks are “safe and sound”, and well capitalised and funded. It has repeatedly voiced its support for the recent takeover.
The Bank along with five other central banks said they would increase the flow of US dollars through the global financial systems to keep credit going.
The US banking system and the EU claim their systems are still proving to be “resilient”, too.
It’s not yet clear what would happen with Credit Suisse employees though – and 5,000 of the 74,000 workforce are based in the UK.