A decade of scandals that eroded trust, long before 2023
Unlike the sudden collapses of Silicon Valley Bank or Barings Bank, Credit Suisse's collapse was the culmination of years of accumulated erosion. The bank, founded in 1856 and considered for generations one of the pillars of Swiss private banking, carried a long chain of scandals: fines for helping US clients evade taxes, an internal spying scandal between its own executives, and constant turnover among its leadership that signaled instability at the top.
The costliest blow came in March 2021, when the collapse of family office Archegos Capital Management, which had built up hidden leveraged positions through several banks, including Credit Suisse, cost the bank around $5.5 billion in losses. That same year, the bank was also hit by the collapse of funds linked to Greensill Capital, a supply-chain finance firm in which Credit Suisse had invested client money.
How a US regional bank's collapse revived fear in Europe
When Silicon Valley Bank collapsed on March 10, 2023, investors worldwide began asking which other financial institutions might carry similar hidden vulnerabilities. Credit Suisse, already weakened by years of scandals and with net client deposit outflows that had already been accelerating since late 2022, immediately became the prime suspect in Europe.
On March 15, 2023, just five days after SVB's seizure, the chairman of the Saudi National Bank, one of Credit Suisse's largest shareholders, said in a televised interview that his institution would not provide more capital to the Swiss bank, citing regulatory restrictions on the ownership stake it could hold in a foreign entity. Although the answer was technically reasonable, markets interpreted it as a sign that not even its largest shareholder had confidence in the bank's future, and Credit Suisse's stock immediately plunged.
The weekend Switzerland orchestrated a forced marriage between rivals
over the weekend of March 18-19, 2023, the Swiss National Bank and financial regulator FINMA pressured UBS, Switzerland's largest bank and Credit Suisse's eternal rival, to agree to acquire it before Asian markets opened on Monday morning, fearing another day of bank panic could trigger a financial crisis of European or even global scale.
The deal, announced on the night of Sunday, March 19, 2023, valued Credit Suisse at around 3 billion Swiss francs, a fraction of what the bank had been worth years earlier, and came backed by tens of billions of francs in state liquidity lines and guarantees to facilitate the deal and reassure markets.
The decision that shook the global bank debt market: AT1 bonds wiped to zero
The most controversial part of the deal wasn't the merger itself, but an associated regulatory decision: FINMA ordered the complete write-down, to zero value, of around $17 billion in Additional Tier 1 capital bonds (known as AT1 or 'CoCo bonds,' a type of debt designed to absorb losses during banking crises), while Credit Suisse shareholders, who under any standard capital hierarchy should normally absorb losses before bondholders, did receive compensation (albeit greatly reduced) in UBS shares.
This reversal of the usual loss-absorption order (AT1 bondholders wiped to zero, shareholders given some compensation) sent an immediate shock through the global market for other European banks' AT1 bonds, whose prices plunged on fears that regulators in other countries might apply the same approach in a future crisis, forcing several European central banks to publicly clarify that the traditional order of priority would be respected in their jurisdictions.
- Credit Suisse AT1 bonds: around $17 billion wiped out entirely, to zero.
- Credit Suisse shareholders: received reduced compensation in UBS shares.
- Consequence: an unusual reversal of the standard loss-absorption order that shook the European bank debt market.
The lesson: confidence is lost slowly, then all at once
The Credit Suisse case combines two lessons we already saw separately in this series. As with Lehman Brothers, years of questionable risk decisions and reputational scandals eventually came due all at once. And as with Silicon Valley Bank, once confidence breaks publicly, collapse can materialize within days, not months, regardless of an institution's size or age.
The outcome also confirmed an idea running through this entire series: 2023 regulators acted with a speed and a willingness to intervene decisively very different from the indecision surrounding Lehman's collapse in 2008, even though decisions made under that pressure, like the AT1 write-down, created their own unforeseen consequences.
Apply This Knowledge to Your Real Finances
eXcenda combines net worth, expenses, simulations, and macro context into a single app so you can move from theory to action.
Frequently Asked Questions
Due to the accumulation of years of scandals and losses (including the 2021 Archegos Capital collapse, which cost it around $5.5 billion) that badly eroded client and investor confidence, until the shockwaves from Silicon Valley Bank's March 2023 collapse triggered a massive deposit outflow the bank could no longer withstand.
Archegos was a family office that had built very large, hidden leveraged positions through several banks. When it collapsed in March 2021, Credit Suisse, which had lent it a significant share of that exposure, suffered losses of around $5.5 billion.
The Swiss regulator orchestrated the forced acquisition of Credit Suisse by rival UBS over the weekend of March 18-19, 2023, valuing the bank at around 3 billion Swiss francs, backed by state guarantees and liquidity lines.
Swiss regulator FINMA wiped out around $17 billion in AT1 bonds entirely, leaving them worthless, while the bank's shareholders did receive reduced compensation in UBS shares, reversing the usual order of loss absorption between bondholders and shareholders.
Because shareholders should normally absorb losses before bondholders under any standard capital hierarchy. Reversing that order sent a shock through the global market for other European banks' AT1 bonds, on fears the same approach could be applied in future crises.