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Swiss National Bank calls for new measures after Credit Suisse crash


Noele Illien
Wed, June 21, 2023 

Swiss National Bank building in Zurich

ZURICH (Reuters) -The Swiss National Bank (SNB) on Thursday said it was crucial to draw lessons from the Credit Suisse crisis that led to the bank's downfall and forced rescue by rival UBS and consider measures that would prevent such events in the future.

"These measures need to strengthen banks’ resilience in order to prevent a loss of confidence wherever possible, and ensure a broad range of effective options to stabilise, recover or wind down a systemically important bank in the event of a crisis," the central bank said in its 2023 financial stability report.

Among the measures, the SNB called for banks to be required in the future to prepare a minimum amount of assets that could be pledged for central banks, a step designed to help banks access emergency liquidity if worried customers rapidly withdrew cash.

Switzerland's largest bank recently grew even bigger, following its rescue of embattled Credit Suisse in a takeover engineered by Swiss authorities in March and formalised by UBS on June 12.

Politicians and economists have raised concerns whether Switzerland can effectively oversee a bank that now has a balance sheet of $1.6 trillion and 120,000 employees worldwide, and risks associated with that.

The SNB said it was not yet able to judge how resilient the newly merged bank would be.

"The currently available data are not sufficient for a comprehensive assessment of the combined bank’s resilience in such a forward-looking analysis," the report said.

Still, lessons needed to be learned "in view of the higher systemic importance of the combined bank and the associated risks for Switzerland," the SNB said.

The central bank said there were, however, three key observations to come from the crisis, including that compliance with capital requirements is necessary but not sufficient to ensure confidence in a bank.

Capital instruments designed to absorb early losses were not effective, the SNB said.

"AT1 capital instruments absorbed losses only as the point of non-viability was imminent and state intervention became necessary," the report said.

The SNB also said that the scale and pace of deposit outflows at Credit Suisse that resulted from the loss of confidence were unprecedented and more severe than assumed under the liquidity regulations.

In a statement published the day the biggest banking deal since the 2008 financial crisis officially closed, Swiss regulator, FINMA, said one of the most pressing goals for the new merged bank was to quickly reduce the risk of the former Credit Suisse investment bank, but was confident this could be achieved.

(Reporting by Noele Illien and John Revill Editing by Tomasz Janowski)

Three former Credit Suisse CEOs blamed for excessive risk-taking in bondholder suit
Reuters
Thu, June 22, 2023


ZURICH (Reuters) -A group of Credit Suisse AT1 bondholders has filed a class action suit accusing former executives at the Swiss bank, including three past CEOs, of being responsible for the bank's downfall.

A lawsuit filed in a New York court on Tuesday accused former bosses Thomas Gottstein, Tidjane Thiam and Brady Dougan, and several other executives of doing excessively risky trades to achieve high short-term returns and bonuses.

"Credit Suisse’s directors and senior executives, and the rotten culture they instilled and fostered, destroyed trust in the bank, which led to its collapse," the lawsuit said.

The lawsuit also accused executives of "creating and perpetuating a culture at Credit Suisse that placed profits, excessive risk-taking, and self-dealing over sound risk management and compliance with the law."

It did not specify the amount of compensatory damages the plaintiffs were seeking.

UBS, which earlier this month became Credit Suisse's new owner following a government-engineered rescue in March, said it would not comment on the court case.

Representatives of Exos Financial, a financial firm founded and led by Dougan, did not immediately respond to an e-mail seeking comment, while the two other former chief executives could not be immediately reached for comment.

As a part of Credit Suisse's rescue, Switzerland's regulator decided to render around $18 billion of Credit Suisse's Additional Tier 1 (AT1) debt worthless, which stunned markets and alerted litigators.

The deal upended a long-established practice of giving bondholders priority over shareholders in a debt recovery, triggering hundreds of lawsuits.

Last month, Switzerland’s Federal Administrative Court said it has received 230 claims against the country’s financial regulator FINMA after it wrote off the value of Credit Suisse’s AT1 bonds.

(Reporting by Noele IllienEditing by Tomasz Janowski)