People would rather trust a credible person whom they hate than to believe in the words of a dishonest friend. This not only applies to people, but to organisations and countries. One good example is the Swiss banking industry. Much has been discussed on how the Swiss banking industry was built on the blood and lives of others, and everyone knows it. Yet people can overlook this fact and continue to put their wealth with them because of one reason – that the Swiss will fiercely protect their clients’ assets with secrecy. This is why despite the fact that the West is always at odds with some countries, the Russians, the Chinese and people all around the world bank with them.
When it comes to money, the Swiss does not discriminate against ideology, religion, skin colour, politics, source of funds and everything else. Money is money. They do not question, and others have no right to question. Until Credit Suisse decided to break trust and froze $10.6 billion worth of Russian assets upon the breakout of the Russian-Ukraine war. UBS on the other hand sacrificed only $200 million as a token sum to pacify others. A small sum which they could easily cover out of their own pockets.
To give a very brief summary of what happened as reported in the news officially, Credit Suisse is now being called the next Lehman Brothers after a blood bath in its share price from a series of risk management failures, of which its investment in Archegos hedge fund reported a loss of $4.7 billion when Archegoes lost more than $20 billion after being forced to liquidate its positions in a number of Chinese stocks.
The question we ask most in this blog is: Is that really true?
We look at Credit Suisse’s 2Q 2022 financial report page 37, and we see that compared to 1Q 2022, 2Q 2022 has a net asset outflow of CHF 7.7 billion. Client assets have reduced significantly. In simple terms, people are withdrawing their money after the bank sacrificed the Russians to please the political powers. For a fair comparison, we look at UBS, Credit Suisse’s competitor. Compared to Credit Suisse’s net loss of approximately CHF 1.6 billion in 2Q 2022, UBS reported a net profit of USD 2.1 billion in the same time period, with deposits even increasing as indicated in page 6 of their 2Q 2022 financial report.
What is the core of a bank’s business? Customer deposits. With deposits, the bank can lend to others, invest in others, trade in the financial markets and a whole lot of other things could be done. How much the bank earns in the interest and financial markets is only the add-ons. Without customer deposits, all other businesses have to stop.
When clients withdraw money from the bank in huge volumes, it impacts the operations of the bank. Banks are not going to have cash sitting idly by in the vault collecting dust. The money has to be put to work somewhere. As of 2Q 2022, we see that Credit Suisse has about CHF 140 billion in cash, more than enough to cover for the withdrawal. But do also take note that the figures were as at 2Q 2022. 3Q has ended, and we should expect a report at the end of this month. We have no idea what are the exact figures, but we can expect more withdrawals and more losses in 3Q 2022, especially when the last quarter saw US-China tensions going to an all-time high marked by Nancy Pelosi’s visit to Taiwan.
The crisis that Credit Suisse is facing now probably comes from some inside information leak ahead of the official 3Q 2022 report. Espionage is common in the business world too. Banks have to maintain a healthy amount of liquidity because of the sheer volume of their transactions. They cannot come to a point where they are assets rich but cash poor, landing themselves in a difficult spot when customers want to withdraw their money. It becomes an issue if the banks face too much withdrawals and have no choice but to sell off certain assets to maintain the liquidity.
One has to know what is the foundation of their success. For banks, it is customer deposits. For Swiss banks, it is the credibility of secrecy which appeals to clients. That is the very core of their foundation. Unfortunately, Credit Suisse made the mistake of breaking that pact. It does not matter if banks were to appear to stand for a cause or fight for justice. Many organisations have wonderful vision and mission, as well as inspiring corporate social responsibility targets. But they are careful not to touch the core of their support. Credit Suisse perhaps forgot that and for a moment thought they were actually Human Rights Watch.
In fact, Credit Suisse screwed up so much that they sacked their CEO and got a new one from UBS. Although the new CEO had worked in Credit Suisse many years before, but this is like Coca Cola making a mess and then asked the CEO of Pepsi to go over to clean up for them. Perhaps it also shows how serious of a situation Credit Suisse is in and they will do anything to get back on track. While it is common for big organisations to headhunt their rival’s talents, it is rarer to recruit a rival’s personnel to clean up one’s own mess. But credibility is difficult to build up, and even more so after it is broken.
Despite Credit Suisse’s recent failures, I am of the opinion that it will not fall. Switzerland is known for their banking industry, of which Credit Suisse is one of the faces of their famed sector. Letting Credit Suisse fail is like telling the whole world that Switzerland is failing. They cannot allow that to happen. Just like how Singapore bailed out Singapore Airlines during the Covid period, the Switzerland government is likely to bail out Credit Suisse when necessary. Discipline can be done internally, but to external parties an infallible unity must be presented. The core of Switzerland’s foundation for success is its banking industry. It has to defend it at all cost.
Credit Suisse and UBS had gone through turbulent times such as both World Wars and multiple financial crisis. Banks of such nature are backed by not only a whole load of financial power, but also information which commoners do not have access – critical information to not only survive, but to profit and to climb up another level in times of crisis at the expense of others. Contrary to public fantasy that evildoers will get their due punishment in time, the reality of this world is such that the big corporations have so much experience reaping off the blood and lives of others that such a small obstacle is unlikely to sink them. It is ridiculous to say that just because of its current crisis, it is going to suffer a Lehman Brother’s fate. Possible yes, afterall Lehman Brothers did fall, but improbable. Credit Suisse will not fall.
What can we learn from all these as a common farmer?
In everything we do, know exactly what is the foundation you stand on. In marriage, personal relationships, career positions, businesses and everything other thing, know the very thing you must protect at all cost. There are things which can be tolerated as long as you fulfill the most important part well.
Many people make a lot of noise everyday to distract you from the truth. From the news to official statements, from analysis by experts to public discussions, learn to critically think and filter out all the noise. Know the crux of the issue at hand so that you are able to see the truth and act accordingly. Learning this skill will not only help you in your daily life, but also in your working life, in your financial markets trading, in your business and everything else. Conversely, creating a lot of noise to distract the enemy is one basic common tactic of war too, which can also be scaled down and applied to us when necessary.
Look things in the bigger context. Credit Suisse has fallen by about 60% since the start of this year, evoking much panic among investors. But if we zoom out and look at the chart, we will see that in the NYSE stock market, its highest was $77.40 in 2007 compared to the $4.20 now. For some reason people are panicking more from it falling from $10 to $4 instead of worrying that since 2008 it has been dropping from a high of $77. I did not research too deeply into why the share prices drop so much, but when looking at things, look at the wider view and not just a narrow scope.
Admit your mistakes and seek to rectify it as soon as you can, even if it is painful. Everyone makes mistakes, sometimes we make stupid mistakes. But even if you made a grave mistake, do all you can to salvage the situation. If you do something, you have hope. If you do not correct your mistakes, then only doom will await you.
Make yourself valuable. People do not do charity. Just like how I believe Switzerland will save Credit Suisse because it is essential for them, people will only help you when it benefits them or when your failure will cost them great harm. While I hope this does not apply to your friendships, it certainly applies in your career and in your business, or any other mutually beneficial transactional relationship.
For the sake of survival, ask help from those you do not like if you have to. It may be difficult, but dying is an even worse outcome. Cast away your pride and ego when it comes to survival. Sometimes, your enemy knows you better than your friend. That knowledge can be used for or against you.