Credit Suisse Shares Plunge as Legal Challenges Dent Recovery Plan

By Jacob J
October 13, 2022 09:18 +08

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Fresh legal challenges pushed Credit Suisse shares south on Wednesday, dashing hopes of a tenuous recovery after mammoth losses so far this year.

Shares plunged as much as 5 percent before closing at $4.20, at a daily loss of more than 4 percent. The newest crisis unfolded on news that the US Justice Department is investigating if the embattled Swiss banking giant helped its US customers hide hundreds of millions of dollars.

The decline in share price bucks the trend last week when the stock saw a three-day gaining streak, spurred by news that bidders were expressing interest in buying its securitized products unit. Apart from hiving off the securitized product division, the bank also mulls a scaling back of its huge investment-banking.

Shares Down 52%

The shares of Credit Suisse, which triggered a Lehman Brothers-like moment of crisis earlier this month, are down 52 percent year to date. The bank has said it will unveil a turnaround plan on October 27. As part of the recovery plan, Credit Suisse tried to allay fears over liquidity by announcing last week that it would buy back up to $3 billion of its own debt. CEO Ulrich Korner has said stock price decline is not an indicator of the true financial status of the bank and that the plan to be unveiled on October 27 will reassure markets.

According to Bloomberg, the bank is likely to announce potential stake sake, bring in outside investors and funnel more money into its advisory and investment bank businesses. Significant asset sales will also likely take place as part of the restructuring. The agency also said Credit Suisse could even sell off its Latin American wealth management operations.

Credit Suisse had a market capitalization of $22.3 billion just a year ago. The value crashed to just about $10 billion at the end of September, even as shares plunged 56 percent in one year to $3.98. Even after Monday's rally, the shares are still down some 50 percent year-to-date.

Legal Woes

In another blow, a federal court in Manhattan has started the trial in a case relating to currency rigging allegations against Credit Suisse. The class action suit that was launched in 2013 accuses the embattled Swiss banking giant of rigging the foreign exchange market and hurting customers. The lawsuit says Credit Suisse traders shared nonpublic pricing information with traders in other banks and colluded to fix prices in the foreign exchange market. Chat rooms such as 'Yen Cartel' operated between 2007 and 2013 and traders from various banks participated in it to manipulate spreads for currency pairs.

Credit Suisse is also battling legal mess in Singapore. The Credit Suisse Trust is bracing for the verdict in a case in Singapore over its exposure to a rogue bank that resulted in losses. In another case, Switzerland had found the bank guilty of money laundering.

The Credit Suisse Crisis Saga

The first major shock for Credit Suisse was the bankruptcy of Greensill, a British supply chain company to which the Swiss banking major was heavily exposed. When Greensill filed for bankruptcy in 2021, Credit Suisse lost a whopping $10 billion of its investor money.

The second crisis to hit Credit Suisse later in the same year was the unraveling of Archegos Capital Management, which was promoted by Bill Hwang. While Hwang managed $10 billion, he convinced Credit Suisse and other banks to approve a $30 billion investment.

The crisis unfolded when Archegos engaged in the fire sale of about $20 billion of assets after it defaulted on a margin call by Credit Suisse and others. Shares of Nomura and Credit Suisse plunged, erasing a combined $9 billion in market value on the back of the market chaos following the collapse of Archegos Capital Management. Major investment banks like Deutsche Bank, UBS, Morgan Stanley, Goldman Sachs etc were also hit by the liquidation of Archegos.