Identifying Blind Spots in Banking: UBS and CS

UBS Acquires Credit Suisse

AlphaSense hosted a webcast last Friday featuring Marc Rubenstein, author of the excellent Net Interest newsletter and former Managing Director at Credit Suisse The full webcast is worth a listen, but a few quotes stood out:

“Credit Suisse had a lot of exposure to [Archegos Capital]… and it stemmed from them cutting out too much of the risk management function. Poor risk controls, a declining market share, a structurally unprofitable business model, that’s been the case since 2015. In the 4th quarter of last year rumors about Credit Suisse’s viability flashed up on Twitter and a run on the bank commenced. They lost 37% of their deposits in the fourth quarter, but had sufficient liquidity to meet those deposits”

Fast forward to this week. The events at SVB have driven home that uninsured depositors represent unsecured creditors to a bank, and nobody wants to take that risk. Credit Suisse is a very different story from US regional banks. Structurally unsound business model that has been muddling along for years now.”

-Marc Rubinstein, Author of Net Interest

Expert transcripts in the Stream library sounded similar warnings about Credit Suisse:

“[Credit Suisse] can reorganize, they can have this new strategy, but if something big comes in, it may shake them and that might throw them off their course.”

Former SVP, Credit Suisse (December 2022)

“Credit Suisse is going through a whole host of problems, including employee turnover and attrition. Who knows what Credit Suisse is going to look like in a few years, let alone six months from now? I think UBS does stand to benefit from that, especially in the wealth management business. I would expect more inflows from Credit Suisse and into UBS Wealth Management.”

Former Director, UBS (February 2023)

If you want the full retrospective, you can find many more expert call transcripts in the Stream library (note: you must be logged in to Stream to access these links. If you’re not a client, request access to Stream here).

As Marc Rubinstein noted, Credit Suisse is a unique case. Are there lessons from the bank’s collapse that are broadly applicable? This former Executive Director at Morgan Stanley sees a pattern:

The challenge for banks is always going to be, ‘Oh, wow. This new business is extremely attractive. It’s very hot. Do we get involved with it?’ 

You even think about cryptocurrency… the FTX issues, that disaster… that issue with Credit Suisse, that essentially destroyed their equity fund brokerage business, which was a long-term business for them.  At the end of the day, what once was considered black swan events, those types of events are real.

There always exists a real possibility of some market event that no one had seen before. You can’t avoid it, but can it be contained? If you can contain the damage, minimize the damage, then that’s like the cost of really being on the cutting edge and trying to expand.

Former Executive Director, Morgan Stanley (January 2023)

He’s mostly talking about Credit Suisse, but you can see the fit with Silicon Valley Bank.

Austin Moorhead
Austin Moorhead
Content Marketing for Stream by AlphaSense

Austin’s primary experience is in consulting and private equity, though he’s also a published author.

Read all posts written by Austin Moorhead