Credit Suisse Fallout Hits Major Banks

20 March 2023, 05:24

The latest and largest fall in the recent banking turmoil is embattled Swiss lender Credit Suisse. Credit Suisse Group AG bondholders suffered a historic loss of about CHF 16bn ($17.3bn) worth of risky notes when a takeover by UBS Group AG triggered a “complete write-down” of the bank’s additional tier 1 (AT1) bonds in order to increase core capital. The move provoked a furious response from some of Credit Suisse’s AT1 bondholders who believed that money should have gone to them instead, leaving nothing for shareholders. The wipeout is the biggest loss yet for Europe’s $275bn AT1 market. The broader market for those risky European bank bonds, also known as contingent convertibles or CoCos, has also tumbled in the past two weeks, with the average AT1 indicated at a price of about 80% of face value on Friday, one of the steepest discounts on record.

Meta Announces Further Job Cuts

Meta, previously known as Facebook, has declared that they will be cutting another set of jobs, around 10,000 positions, in order to make the company a more effective and efficient organization. CEO Mark Zuckerberg has stated that these job cuts are part of the “year of efficiency.” The company will be focusing on middle management positions, and will leave 5,000 other roles unfilled. Meta is reducing its headcount due to the harsh economic climate in 2022, which resulted in decreased advertising revenues due to Apple’s data privacy changes. Meta had previously announced a cut of 11,000 jobs in November 2022.

Silicon Valley Bank Fails in Largest Bank Collapse Since 2008

SVB, the only publicly traded bank focused on Silicon Valley, announced on March 8 that it had sold $21 billion of securities from its portfolio at a loss of $1.8 billion and would sell $2.25 billion in new shares to shore up its finances. The bank’s parent company, SVB Financial Group, was unable to raise new equity or find a buyer, and on March 10, the bank was put into receivership by the Federal Deposit Insurance Corp. The FDIC created a new bank, the Deposit Insurance National Bank of Santa Clara, to hold the assets of SVB. Insured depositors will have access to their money starting March 13. SVB’s distress was caused by several factors, including the rapid interest-rate increases by the US Federal Reserve, which hit SVB especially hard, and the sharp downturn in high-flying tech companies that had been the source of its rapid growth. HSBC Holdings Plc bought the UK arm of SVB for a symbolic £1, but it’s not clear if a buyer will emerge for SVB’s US assets. US banks had recorded $620 billion in unrealized losses on their available-for-sale and held-to-maturity debts by the end of 2021. These paper losses “meaningfully reduced the reported equity capital of the banking industry,” according to filings with the FDIC.