On March 9 at 11:17:16, as Silicon Valley Bank stock plunged on the Stock Market and depositors massively requested the withdrawal of their deposits (42,000 million that day), Credit Suisse announced a technical delay in the publication of its Annual Accounts for the year 2022. The accounting policies for the year 2021 were being reviewed and made sure that they were not affected the 2022 results that were announced on February 9, 2023. The following day, March 10, FINMA (the Swiss financial market supervisory authority) published a press release in which He explained that he did not see sufficient indications to continue the investigation into the flight of deposits in Credit Suisse and statements made by the Chairman of Credit Suisse. However, he explained that he had made it clear to Credit Suisse what was expected of the Bank in future communications. This makes it clear how important deposit stability is for Switzerland from their financial institutions.
Credit Suisse’s Annual Accounts for the year 2022 were finally published by the SEC on March 14 at 7:44:15. Analyzing these Annual Accounts we can observe the dramatic financial situation that Credit Suisse was dragging. In the fourth quarter of 2022, there was a massive deposit flight that amounted to 138,000 million Swiss francs (139,997 million euros), which left the Banking Group with a deposit level of only 233,235 million Swiss francs. At the beginning of 2022, the level of customer deposits was 392,819 million Swiss francs, which meant an annual loss of deposits of 159,584 million Swiss francs (40.62%). On the other hand, Bank New York Mellon, which owns 5.31% of the shares of Credit Suisse, also suffered a drop in deposits amounting to 23,125 million dollars in the last quarter of 2022, but this only represents 7.65 % so it is not comparable to the case of Credit Suisse.
Augustine Monzon
The Annual Accounts also show that the Banking Group has recognized a gain (before taxes) derived from its own credit risk amounting to 7,010 million Swiss francs. That means that since your ability to pay has decreased, your obligations are worth less, which highlights the difficult situation that Credit Suisse was going through.
In addition, on October 7, 2022 at 10:44:37, it informed the SEC that it was making a repurchase offer for part of its senior debt for an approximate amount of 3,000 million Swiss francs in order to take advantage of the buy at attractive prices, that is, the offer implied the assumption of some discounts (losses) by the creditors.
On November 23, 2022 at 15:17:35, it notifies the SEC that it has received shareholder approval at an Extraordinary General Meeting to increase capital by 4,000 million Swiss francs through two capital increases. The first increase received the support of 91.97% of the shareholders and the second 98.31%. On November 25, 2022 at 11:16:52 it reports that the capital increase has been launched. On December 8 at 18:21:16 it was reported that the rights to 98.2% of the shares of the second increase had been executed and that the rest would be sold on the market. In addition, they reported that With both extensions it was hoped to obtain the 4,000 million Swiss francs that had been set as the objective.
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The confidential
All previous points to a dramatic situation for Credit Suisse. On March 14, he communicated to the SEC the Annual Accounts for the year 2022. In said Annual Accounts, he explained that the Board proposed a dividend of 0.05 Swiss francs per share in accordance with the plan approved on October 27, 2022 and that this will vote at the General Shareholders’ Meeting to be held on April 4, 2023. It is very striking that the Annual Accounts sent to the SEC on March 14 contain a proposal for the distribution of dividends, the Group being in a dramatic situation. Currently, the Group’s website explains that this distribution of dividends will be made through a return of contributions, which will not have withholding and will not imply taxation for Swiss residents. On March 15 at 4:47 p.m., Reuters reports Credit Suisse appeals to Swiss Central Bank to publicly show support. That same night, the Swiss Central Bank and FINMA issue a joint statement in which they show their confidence in Credit Suisse. The Central Bank of Switzerland will provide liquidity if necessary.
On March 16, Credit Suisse announces that it will request 50,000 million Swiss francs through a loan collateralized with high quality assets. It also notifies the SEC that same day at 8:18:25 that it is making a repurchase offer for senior debt for a maximum amount of 2,500 million dollars and another for an amount of 500 million euros. As for the first offer, it includes a total of senior debt amounting to 13,202 million dollars, capable of being purchased with a maximum of 2,500 million dollars. However, it is explained in the offer that this maximum could be increased by Credit Suisse. The discounts (losses for the creditor) offered range from 2% to 10% depending on the maturity and type of senior debt. If all the senior debt (13,202 million dollars) were repurchased, Credit Suisse would record a profit of 826 million dollars (6.25%).
On the other hand, in the last quarter of 2022, Credit Suisse bought 322.2 million own shares, although it is true that monthly purchases are similar throughout the year. It is considered necessary to remember that the purchase of own shares is a common way of remunerating the shareholder, but it does not seem logical that in the situation that Credit Suisse is going through, there should be a purchase of own shares and a proposal for the distribution of dividends, contained in the Annual Accounts sent on March 14, 2023, when the bank is in a dramatic situation and creditors are bearing losses. Besides, it would not be logical for a dividend to be given to shareholders on which Swiss residents would not be taxed and, on the other hand, every Swiss taxpayer is financially supporting the bank with a loan from the Swiss Central Bank. I understand that this dividend is not going to be allowed, but the fact that something so irrational from an economic point of view is being proposed is, in my opinion, tremendously striking.
* German Lopez Espinosa He is a Professor of Accounting at the University of Navarra and IESE
On March 9 at 11:17:16, as Silicon Valley Bank stock plunged on the Stock Market and depositors massively requested the withdrawal of their deposits (42,000 million that day), Credit Suisse announced a technical delay in the publication of its Annual Accounts for the year 2022. The accounting policies for the year 2021 were being reviewed and made sure that they were not affected the 2022 results that were announced on February 9, 2023. The following day, March 10, FINMA (the Swiss financial market supervisory authority) published a press release in which He explained that he did not see sufficient indications to continue the investigation into the flight of deposits in Credit Suisse and statements made by the Chairman of Credit Suisse. However, he explained that he had made it clear to Credit Suisse what was expected of the Bank in future communications. This makes it clear how important deposit stability is for Switzerland from their financial institutions.
