Crisis in the making: Credit Suisse on the verge of Collapse

Key background:

Credit Suisse is the 45th-largest bank in the world, second-largest Swiss-based bank and 17th-largest in Europe, according to S&P Global Market Intelligence. The bank installed Körner as its top executive in July after the bank missed on earnings, and Credit Suisse has been marred in recent by billions of dollars in losses from financial penalties and the collapse of asset manager Archegos and financial services firm Greensill. Credit Suisse has $100 billion available to cover any losses, according to talking points sent to executives viewed by the New York Times, and the memo said, “Speculating that we have a liquidity issue simply would be completely false.”

Since its foundation in 1856, Credit Suisse has played a central role in the history and development of Switzerland. It was set up by Swiss politician and businessmen Alfred Escher to finance the country's railways and support industrialization.

Through a series of mergers and acquisitions, it has grown to become the second-biggest lender in Switzerland and one of the biggest banks in Europe.It had just over 50,000 employees and 1.6 trillion Swiss francs ($1.62 trillion) in assets under management at the end of 2021.Credit Suisse has a domestic Swiss bank plus wealth management, investment banking and asset management operations. The Swiss National Bank has designated it one of Switzerland's global systemically important banks, whose failure would cause "significant harm to the Swiss economy and financial system".

How has market Reacted:

Credit Suisse shares have fallen more than 55% this year, while its euro-denominated bonds hit record lows on Monday.

Credit default swaps for Credit Suisse - instruments used to insure exposure to the lender's debt - stood at 250 basis points (bps) on Monday - a sharp increase from the 57 bps at the start of the year.

Options Bank has:

Credit Suisse has said it wants to strengthen its wealth management franchise, scale back its investment bank into a "capital-light, advisory-led" business, and evaluate strategic options for the Securitized Products business.

Analysts estimate it could face a capital shortfall of around 4-6 billion Swiss francs, depending on what it does to scale back its investment bank and how much it raises from asset sales, to restructure, support growth and have a safety cushion.

"Asset sales will help but 4 billion Swiss francs is likely to come in the form of a highly dilutive capital raise. The good news is some of this is already in the share price," analysts at Keefe, Bruyette & Woods wrote in a note.

A directed capital increase at a major shareholder could be an option.

As a last resort, Credit Suisse could seek state aid.