Credit Suisse Crisis explained | What triggered Credit Suisse Collapse? |

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Credit Suisse is considered a systematically important bank. The Credit Suisse crisis triggered a stock market crash around the world. Credit Suisse news today is a much bigger crisis than the Silicon Valley Bank collapse or the HSBC crisis. In this video, I shared the Credit Suisse Business Model, problems faced by Credit Suisse, triggers of the recent collapse, and what takeaways we can draw from this entire scenario. Credit Suisse earned $15 Bn in profits in 2022. These $15 Bn came from a) wealth management and asset management stream (40%), b) investment banking (30%) c) commercial & retail banking (30%)

Problem areas for Credit Suisse are Wealth Management & Asset Management and Investment Banking. Let’s first see what is Wealth Management. When we deposit our money into a bank, the bank gives us interest while giving out that same money to other people as loans. The difference between the interest charged on loans disbursed and given on deposits withheld is the profit of a bank. It is known as the differential interest income of a bank. Similarly, when rich guys put their money into a bank, they don’t just put a few hundred thousand rupees. They put 1000s of crores into the bank and in return, the bank says since we are managing your money we will take a 1% cut. So out of 1000 crores, 10 crores will be the bank’s fees.

Once charging this commission, the bank will then strategize with rich depositors like Bill Gates and take that 1000 crores to buy stocks, bonds, or do something else in the market in collaboration/understanding with Bill Gates. Banks don’t only manage investments under wealth management, they also manage retirement funds, tax planning, etc. So, this is a holistic management of funds for rich people. Banks also charge commissions on returns in this case.

The problem with Credit Suisse is that they were involved in a lot of financial scandals. This reduced the trust of rich people in order to get Credit Suisse as their wealth manager. At the start of 2022, Credit Suisse was managing $900 Bn of wealth from rich people, by the end of the year they were only managing $580 Bn. This drop of $320 Bn in wealth management funds means a huge loss in commission fees and revenues for Credit Suisse. Impromptu Social Media posts about Credit Suisse going down led to outflows of close to $100 Bn. It is understandable that trust is an important factor and it was lost around because of these posts. In this dire situation, Credit Suisse got external funding of $1.5 from the Saudi National Bank.

Investment Banker’s job is to facilitate mergers and acquisitions. Investment Bankers also act as middlemen and do the due diligence of having checks and balances during M&As. But since the macroeconomic conditions are not favorable for M&As, the work for Investment Bankers is also going down. But what triggered the collapse? On March 14th, Credit Suisse Director came up with a press release material and said that they have material weaknesses in their accounting teams. Material weaknesses can mean not having enough accountants. Irregular reviews, or incorrect numbers. No matter what it means - the impact is the same since customers lose their trust.

On March 15th Saudi National Bank came up with a statement that they’ve already given $1.5 Bn To Credit Suisse, but they won’t be pumping any more money into it. Because of this, the investors thought that people will start pulling their money out of Credit Suisse and there is nobody to support this bank either now. After this, the greed and fear mechanism of the stock market kicked in and the stocks started falling.

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Chapters

0:00 - Intro
1:15 - Pointers
1:55 - Credit Suisse Business Model
2:35 - Wealth Management
4:29 - Problems
6:09 - External Funding
6:50 - Investment Banking
8:00 - What triggered the collapse?
10:12 - Good News & Bad News
11:14 - Takeaways
12:37 - Outro