When a bank goes down, it won’t go down alone.
Speculations on the bleak future of Credit Suisse, which broke out in October 2022, resurfaced this year.
The Switzerland-based bank with approximately $578 billion in assets, has been in intense trouble due to “material weakness” revealed in its reporting.
A Major Hit if it Happens
Credit Suisse has experienced more turbulence after its largest shareholder reportedly ruled out assistance.
In an interview with Bloomberg, Ammar Al Khudairy, Chairman of the Saudi National Bank (SNB), Credit Suisses’ biggest shareholder said that the bank would stop increasing stake due to legal issues.
“The answer is absolutely not, for many reasons. I’ll cite the simplest reason, which is regulatory and statutory. We now own 9.8% of the bank — if we go above 10% all kinds of new rules kick in, whether be it by our regulator or the European regulator, or the Swiss regulator.”
Credit Suisse shares took a nosedive following the statement, dropping to a record low.
The stock has now fallen for seven consecutive sessions, indicating that the bank is in for a rocky ride. With legal issues looming, investors are growing increasingly cautious, and uncertain about what the future holds for Credit Suisse.
A Tricky Situation
According to recent updates, Switzerland’s central bank said it would provide liquidity to Credit Suisse if necessary.
The turmoil of Credit Suisse, however, is not associated with the ongoing banking panic in the US.
In fact, Credit Suisse has experienced a major setback following a series of financial scandals of Greensill and Archegos. The report shows that Credit Suisse has lost almost $15,5 billion in 2 years due to the disastrous investments.
The bank’s operations were historically linked to numerous illicit activities including money laundering. Credit Suisse was fined for bypassing US sanctions in 2009 and evading US taxes in 2014.
Impact On Crypto Market
BlackRock CEO warned on Wednesday that no bank was safe from the spreading contagion. “It’s too early to know how widespread the damage is,” Laurence Fink added. Panic still dominates the markets despite the swift response of regulators.
Credit Suisse and Deutsche Bank were the topics of discussion last year when financial troubles hit.
There is a widespread perception that Credit Suisse will follow in the footsteps of Lehman Brothers and fail. But, when taking into consideration the money that is held by Swiss banks, the scale of the devastation could be even greater.
If Deutsche Bank and Credit Suisse fail, they will become insolvent and must liquidate their assets.
When asset prices fall considerably, rival banks must sell assets to avoid margin orders. As a result, the fall of the two titans will have an impact on numerous markets, including cryptocurrency.
Prior to its bankruptcy, the Lehman Brothers securities group reportedly held over $600 billion. Nevertheless, Credit Suisse and Deutsche Bank’s combined assets under management totaled $2.8 trillion, four times that of Lehman Brothers.
The failure of the bank could be disastrous for the EU’s banking system
Both Credit Suisse and Deutsche Bank reportedly invested in digital asset company Taurus earlier this year. In a Series B investment round backed by the banking giant, the Swiss cryptocurrency company Taurus raised a total of $65 million.
Other significant financial institutions, including Deutsche Bank, Pictet Group, and Arab Bank Switzerland, contributed to the funding as well. Whether or not it will help is anyone’s guess at this point.
Taurus is the leading digital asset infrastructure provider for financial institutions in Europe. The firm aims to develop a platform to provide related services. cryptocurrencies, other digital assets, and tokenized securities.
Credit Suisse is also one of the customers of New York-based Paxos Trust Company.