While there have been sales in stock markets throughout 2022 due to the aggressive interest rate cuts of central banks in developed country markets, a new concern has emerged in recent weeks in the axis of Credit Suisse and Deutsche Bank.
Swiss financial giant Credit Suisse was at the center of the discussions, especially over the weekend.
Credit Suisse, which manages approximately $1.5 trillion in assets, actually experienced turmoil throughout the year. However, there has been an information note sent by the bank’s CEO, Ulrich Koerner, to his employees, which has increased the fear in recent days. In the memo seen by Bloomberg, it was stated that the bank was at a ‘critical moment’.
In another memo sent by the CEO, employees were asked to focus on ‘the bank’s strong capital base and liquidity position’, not on daily stock performance. In the information note, which stated that the evaluation process for the restructuring will continue until October 27, “You can appreciate that I cannot share the details of the transformation plans before October 27. However, I would like you to hear from me frequently during this difficult period. You will receive frequent updates”.
‘SAVIDER’ LEFT FROM THE BANK
It is stated that Jens Welter, one of the bank’s investment banking department managers, announced last week that he would leave Credit Suisse, where he worked for 27 years, and move to Citi, which worried other bank employees.
In 2021, 50 people left the investment banking division. Credit Suisse planned to separate this department from its other businesses and make it a separate entity. Jens Welters was tasked with putting together this division, which suffered from both image and financial performance losses. For this reason, the separation of Welters, which is expected to act as a savior in a sense, is of great importance.
SHARES DOWN 60 PERCENT THIS YEAR
Shares of Credit Suisse had already fallen 56 percent in 2022 as of Friday’s close. Shares fell 9 percent this morning, despite the CEO’s “emphasis on a solid capital base” and bank officials’ efforts to persuade big investors over the weekend. Thus, the loss in 2022 reached 60 percent.
So, how did such a negative picture emerge regarding Credit Suisse, which was founded in 1856 and has successfully survived many crises until today? In this case, many scandals that erupted last year have had an impact.
5.5 BILLION DOLLARS IN LOSS
While the US-based investment Archegos Capital Management went bankrupt last year, Credit Suisse, which provides brokerage services to this firm, could not respond to the margin calls. For this reason, the Swiss giant had to write a loss of $ 5.5 billion, and it also laid off 23 employees.
10 BILLION DOLLARS OF FUND SUSPENDED
Last year’s collapse of Greensill Capital, which provides loans to supply chain firms, also had a negative impact on the bank. Credit Suisse was selling Greensill Capital’s risky loans in bundles to its customers. The company’s downfall began when it was revealed that Greensill had misled investors in preparation for an IPO by promising high returns in early 2021. As part of the investigation carried out in the UK, the investor fund of 10 billion dollars under the management of Credit Suisse was suspended.
TUNA BOND CRISIS
Another scandal that shook Credit Suisse last year was in Mozambique. In 2013-2014, he received a loan of 2.2 billion dollars from three newly established companies Credit Suisse and Russian VTB in Mozambique. The government of the time was the guarantor of these loans, which were allegedly used to buy a large tuna fish factory. However, these loans were not approved by the parliament, despite being specified in Mozambican law. In 2016, the government gave Treasury bonds to banks in return for these loans. As a result of the audits, it was determined that 500 million dollars of the loan was lost. This scandal triggered a financial crisis in the country and its local currencies lost nearly 40 percent against the dollar.
Credit Suisse agreed to pay $450 million in penalties to regulators in the US and UK last year for its role in the scandal. He also wrote a loss of 200 million dollars due to the transactions in question.
CHAIRMAN OF THE BOARD OF DIRECTORS REsigned
On top of all this, at the beginning of 2022, Credit Suisse Chairman António Horta-Osório decided to resign after it was revealed that he broke the rules twice during the coronavirus epidemic. Although it was claimed in the international press and social media that António Horta-Osório actually left his job due to the bad situation, these allegations were not confirmed.
LOSS EXCEEDED EXPECTATIONS
Announcing a loss in the last 2 quarters of 2021, Credit Suisse announced a loss in the first quarter of this year after all these developments. First quarter loss was CHF 273 million, above expectations of CHF 114.9 million. Legal expenses of 703 million Swiss Francs and losses of 206 million Swiss Francs related to Russia played a role in the increase in the loss.
$25 billion melted
Consecutive scandals and the resulting losses caused the Swiss giant to lose its market value. In February 2021, the market capitalization of the bank was $34.9 billion, but today it has dropped to $10 billion.
DEUTSCHE ANNOUNCES 1 BILLION EURO PROFIT
Deutsche Bank, one of the largest banks in Germany, increased its net profit by 17 percent in the first quarter to 1.06 billion Euros, unlike Credit Suisse. However, the bank has not yet been able to convince investors after a stormy process that lasted for about 10 years.
Deutsche Bank was fined $8 billion in the US in 2016 for various corruption and irregularities. At that time, it was stated that the bank could go bankrupt. Speaking to the Financial Times on the subject, a senior bank executive described the process as a “near-death experience”.
TAX MISSING INVESTIGATION
The money laundering and tax evasion investigation conducted against Deutsche in April this year was effective in the investors’ lack of hope for the future of the bank. On April 29, the federal prosecutor’s office searched the bank’s headquarters. As a result of the research, it was revealed that at the beginning of August, the bank broke its own internal rules and helped its customers to evade taxes. Investigations are ongoing against 1,500 people related to the issue, 70 of whom are Deutsche Bank employees.
Therefore, although the bank has announced a profit, uncertainties regarding its future continue. For this reason, the bank’s shares lost 36 percent in 2022. Its market value, which was 26 billion dollars a year ago, has decreased to 15 billion dollars today.
REMEMBERED THE LEHMAN CRISIS
The turbulent process of these two banks sparked discussions on whether a new ‘Lehman Brothers’ crisis will occur over the weekend. Lehman Brothers, which went bankrupt in 2008, signed its biggest bankruptcy to date with a debt of 613 billion dollars. The crisis that started in the USA in 2007 due to non-repayment of mortgage loans caused Lehman to depreciate approximately 70 percent in the first 6 months of 2008. In September 2008, the bank declared bankruptcy, triggering the global recession.
It is not possible to attribute the declines in Credit Suisse and Deutsche Bank to a single main event, as is the case with Lehman today. Although the mismanagement and scandals of the years caused investors to stay away from the shares of these banks, the sharp declines in the shares caused a red alert in the markets.