Lessons learned from Credit Suisse crises (2024)

Last weekend was quiet a tense one for financial industry across the world especially for two major Swiss bank #UBS and #creditsuisse where in future prospects of later are changing by every hour. Finally with Swiss authorities intervention deal is brokered where in UBS agrees to buy CS for $3.25 billion dollar finally putting an end to drama which unfolded since credit suisse largest investor Saudi National Bank decline to invest more money in it and $55 billion dollar Swiss government aid assurance also failed to calm market.

Credit Suisse, a Swiss multinational financial services company, has faced a series of crises over the past few years. The crises have led to significant financial losses, regulatory fines, and reputational damage for the bank.

If looked closely the factors leading to bank's failure are noting new for financial industry and they reiterate importance of getting your basics right . Here Credit Suisse seems to have overlooked these factors for chasing growth.

In my view following are factros that lead to collapse of 167 year old Credit Suisse bank:

1. Risk management is critical: Credit Suisse's crisis highlights the importance of effective risk management. The bank's exposure to Archegos Capital Management and Greensill Capital led to losses in billions of dollars, which could have been avoided or minimized through effective risk management strategies.
2. Diversification is crucial: Credit Suisse's heavy reliance on a few clients and investment vehicles played a significant role in the bank's losses. Diversification across clients, industries, and investment vehicles can help mitigate risks and prevent catastrophic losses.
3. Transparency and communication are essential: Credit Suisse's lack of transparency regarding its exposure to Archegos and Greensill eroded investor trust and led to significant reputational damage. Open and timely communication with investors and stakeholders is crucial for maintaining trust and preventing crises.
4. Regulatory compliance is non-negotiable: Credit Suisse's crisis highlights the importance of regulatory compliance. The bank's failure to comply with anti-money laundering regulations and its involvement in questionable transactions led to regulatory investigations and penalties like penalty of $2.5 billion imposed by US regulators for helping clients evade taxes.
5. The impact of environmental, social, and governance (ESG) risks cannot be ignored: Credit Suisse's involvement with Greensill, a company with questionable ESG practices, highlights the importance of considering ESG risks when making investment decisions. Investors must consider the potential reputational and financial risks associated with companies' ESG practices.

Overall, the Credit Suisse crisis serves as a reminder of the importance of effective risk management, diversification, transparency and communication, regulatory compliance, and considering ESG risks in investment decisions