The liquidate solo is a parchment in Credit Suisse

CEO Ulrich Körner maintains his plans at Credit Suisse despite the spectacular fall in the stock market last Wednesday, which was only stopped with the intervention of the Swiss National Bank (SNB). It is not a sustainable long-term strategy for the Zurich-based group or for the country’s authorities. The bad thing is that the alternatives are not very attractive either.

Credit Suisse said in the early hours of Thursday that it intended to borrow up to 50 billion Swiss francs from the central bank to boost its liquidity. The move halted a vicious spiral: shares of the credit institution recovered a fifth of their value, thus erasing much of the previous day’s losses (although they fell again in Friday’s session). On the other hand, the cost of insuring its debt against default fell below 1,000 basis points. Körner declared that after the lifeline he would continue with his transformation of the group, which entails reducing the investment banking area to focus on wealth management.

The problem is that depositors could still withdraw their money, as they did in October and November, for no apparent reason. For someone paranoid with millions or billions, there is no reason not to take the money elsewhere just in case, even if the bank is very solvent. Therefore, the liquidity facility provided by the SNB, which means that Körner will have money to meet deposit withdrawals, may not be the security blanket it appears to be.

All else being equal, losing customer funds means losing revenue, which undermines Körner’s grand plans. The 93 billion Swiss francs in equity assets that left in the final three months of 2022 had already blown up their target of a 6% return on tangible capital by 2025. If assets under management continue to fall, they will eventually reach a level in that Credit Suisse will not be able to turn a fair profit without having to cut more costs than previously anticipated. But cutting costs requires capital, which means Körner may have to rework his strategy. Neither the SNB, nor the financial regulator FINMA, nor the government can tolerate the current situation. Another spectacular stock market crash is possible, with the potential to affect other banks.

The more difficult question is what other options exist. Orchestrating a sale to UBS could jeopardize the strength of Switzerland’s healthy bank. A breakout would be a slow and potentially costly process, assuming buyers would appear for all assets, which they might not. In theory, the government and the SNB could stop the woodworm by guaranteeing all deposits, as the US authorities have done with the fallen Silicon Valley Bank. But that would mean using Swiss taxpayers’ money to bail out the mega-rich in remote parts of the world. The liquidity that Credit Suisse receives is just a patch, but it’s not at all clear what the next step will be.

FOR MORE INFORMATION: BREAKINGVIEWS.REUTERS.COM. The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation is the responsibility of EL PAÍS

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