Nightmares from the past

The news broke into a rather quiet weekly routine: Switzerland’s second-largest bank, Credit Suisse, collapsed on the stock exchange, to an all-time low, down 24.2% to CHF 1.69. And of course it triggered a selling storm in the entire banking sector in Europe.

The Lehman Brothers nightmare, with all that that crash entailed on a global level, immediately came to mind. But let us take a step back.

The Swiss bank has been in bad waters for some time now. In 2021, the US hedge funds Archegos and Greensill failed, costing Zurich more than CHF 6 billion (EUR 6.16 billion). Since then Credit Suisse has tried to pull itself together with the changeover between Thomas Gottstein and Ulrich Korner at the head of the group and by devising a strategy of revitalisation and cutbacks, but 2021 ended with a CHF 1.5 billion red.

Then on Tuesday, the institution announced that it closed 2022 with a loss of more than CHF 7 billion. And the subsequent statement by the President of Saudi National Bank, the Swiss bank’s largest shareholder, did the rest: “We will not inject new liquidity in the event of recapitalisation of the institution”.

The result? On Wednesday Milan lost 4.61%, London 3.83%, Paris 3.58%, Frankfurt 3.27%, while Zurich limited the drop to 1.87%.

Credit Suisse announced that it is offering to buy back debt worth about three billion Swiss francs and is taking “decisive action to preemptively strengthen its liquidity with the intention of exercising its option to borrow up to 50 billion Swiss francs”, about 54 billion dollars, “from the Swiss central bank. This additional liquidity will support Credit Suisse’s core business and clients”. Meanwhile, the bigwigs of the financial world are divided in their analysis of the incident. According to Larry Fink, the CEO of the US fund BlackRock, what is being paid today is the price of «decades of easy money» . Robert Kiyosaki, the investor who predicted the collapse of Lehman Brothers in 2008, believes that «Credit Suisse will be the next victim». While US economist Nouriel Roubini states that «the bank is too big to fail but also too big to be rescued».

The attention of international institutions and politics has also focused on Credit Suisse. The ECB is asking banks across Europe to disclose their exposure to the Zurich-based institution. Prime Minister Giorgia Meloni announced the government’s utmost attention on the financial markets, while French Prime Minister Elisabeth Borne asked the Swiss authorities to intervene directly. For the Italian government, this represents a real problem, because a possible collapse of the Swiss institute could have disruptive effects on our economy, mainly because our treasuries, characterized by a deficit/GDP ratio outside the norm, expose our public securities to speculation.

In the meantime, Palazzo Chigi is working on several fronts. On Thursday, the Council of Ministers approved, among other things, the bill delegating authority to the government for tax reform, destined to affect the entire legislature. Meloni herself defines it as a «necessary turning point» through which the government promises «growth and fairness», constituting a key element of the majority’s programme «aimed at the structural relaunch of Italy on an economic and social level». Among the bill’s aims is to boost economic growth and the birth rate, by reducing the tax burden, increasing the efficiency of the tax structure and identifying tax mechanisms to support families, workers and businesses. Ambitious goals for a reform that intends to «restar the economy and restore Italy’s self-confidence» as Meloni reiterated in her speech today at the CGIL congress in Rimini.