Bankruptcy of SVB and Credit Suisse Overview

Bankruptcy of SVB:

• SVB failed due to an imbalance in its balance sheet between assets and liabilities.
• SVB invested in long-term mortgage securities, which led to significant interest rate risk.
• The sharp rise in interest rates led to the collapse of the bond market in 2022, which had a considerable impact on the bond portfolio of the SVB.
• US accounting rules allowed securities held to maturity to be effectively recognized at their acquisition cost, which prevented SVB from accounting for its losses.
• Deposit withdrawals led to the largest US bank failure since the 2008 financial crisis.
• BlackRock warned SVB that its risk controls were "significantly inferior" to those of other American banks.
• SVB was unable to produce real-time or weekly updates on the evolution of its securities portfolio.
• SVB's CFO was looking for ways to boost the bank's quarterly profits by increasing the yield of the securities it held on its balance sheet.
• Goldman Sachs acquired the bond portfolio from SVB and made a capital gain following the fall in interest rates. Credit Suisse:
• Credit Suisse faced a series of scandals, failures, and disappointments over the past three years.
• The spy scandal and the collapse of Greensill Capital resulted in significant losses for Credit Suisse.
• Credit Suisse faced a series of scandals and losses, including the Archegos and Greensill failures, a corruption scandal in Mozambique, and multiple fines for money laundering and fraud.
• Former CEO Antonio Horta-Osorio was appointed as chairman to lead a turnaround, but resigned after breaching Covid restrictions and stating the crisis at Credit Suisse was worse than anything he had experienced.
• Credit Suisse's reputation was further damaged by the "Swiss Secrets" data leak, revealing the bank hid funds for individuals involved in serious crimes.
• The bank unveiled a plan to cut jobs and spin off investment banking operations, but suffered massive outflows and its biggest annual loss since the financial crisis.
• The SEC questioned the revisions to the 2019 and 2020 cash flow statements, leading to the postponement of Credit Suisse's annual report.
• The bank acknowledged significant weaknesses in its financial controls and announced the end of board bonuses.
• Panic selling ensued after the president of Saudi National Bank stated the institution would not offer additional financial support to Credit Suisse.
• The Swiss National Bank offered a lifeline of 50 billion francs, but daily outflows continued and authorities initiated a takeover by UBS to consolidate the Swiss financial system.
• UBS agreed to take over Credit Suisse for 3 billion francs in shares and assume up to 5 billion francs in losses, wiping out lower-tier bonds and resulting in shareholders receiving significantly less than their previous value.
• UBS is the surviving entity in the agreement, and analysts believe it is better positioned to execute a radical restructuring of Credit Suisse's business.