Bankruptcy of SVB and Credit Suisse Overview

Study Notes

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.

Description

Explore the reasons behind the bankruptcies of SVB and Credit Suisse, detailing the major events and factors that led to their downfall. From investments in mortgage securities to scandals and financial losses, learn about the series of events that ultimately led to the collapse of these prominent banks.