The Credit Suisse Collapse: How Switzerland Lost Its Second Global Bank

On the evening of Sunday, 19 March 2023, UBS confirmed it had agreed to acquire Credit Suisse for CHF 3 billion in UBS shares. Swiss government guarantees of up to CHF 9 billion for certain Credit Suisse risk positions accompanied the deal. CHF 17 billion of Credit Suisse Additional Tier 1 bonds — held by institutional investors across the globe — were written to zero. The transaction had been negotiated over a single weekend. It was executed under emergency Swiss law, bypassing the shareholder votes that would normally be required.

Switzerland had lost its second global bank.

A 167-Year History Ends

Credit Suisse was founded in 1856 by Alfred Escher, one of Switzerland’s most consequential nineteenth-century entrepreneurs, to finance the construction of Switzerland’s railway network. In its early decades it helped industrialise a nation. By the twentieth century it had grown into one of Switzerland’s two universal banks — alongside UBS — with operations spanning investment banking, private banking, and asset management across the globe.

At its peak, Credit Suisse was a genuinely formidable institution. Its investment banking franchise, particularly in leveraged finance, structured credit, and emerging markets, competed directly with Goldman Sachs and JPMorgan. Its private banking network served wealthy clients from Latin America, Asia, the Middle East, and Europe. Its asset management business managed hundreds of billions in client funds.

In 2022, Credit Suisse had total assets of approximately CHF 530 billion and employed around 50,000 people globally. A year later, it would cease to exist as an independent institution.

The Sequence of Crises

The Credit Suisse collapse did not happen suddenly. It was the terminal accumulation of a series of crises, management failures, and reputational wounds that accumulated across three consecutive years.

Archegos Capital — March 2021

Bill Hwang’s Archegos Capital Management was a family office that had amassed enormous leveraged exposure to a concentrated portfolio of media and technology stocks through total return swaps with multiple prime brokers. When several of those positions turned against it in March 2021, Archegos was unable to meet margin calls. Credit Suisse’s prime brokerage desk was among the most exposed, and was among the last to sell its positions as the portfolio unwound.

Credit Suisse ultimately booked a loss of approximately $5.5 billion from the Archegos failure — by far the largest loss among the banks involved. The episode exposed failures in risk management, prime brokerage oversight, and the bank’s willingness to tolerate outsized client concentration risk in exchange for revenues.

Greensill Capital — 2021

Almost simultaneously, Credit Suisse faced a separate crisis in its asset management division. Credit Suisse had distributed approximately $10 billion across four supply chain finance funds seeded with assets originated by Greensill Capital, a financial firm that securitised trade finance receivables. When concerns emerged about the quality of Greensill’s assets and its accounting practices, Credit Suisse suspended the funds in March 2021 and began the process of returning capital to investors.

The Greensill episode raised fundamental questions about due diligence, conflict of interest management, and the asset management division’s governance. It cost Credit Suisse substantial client redemptions and further management credibility.

Spy Scandal

Adding to the institutional dysfunction, Credit Suisse became embroiled in a corporate espionage scandal involving the surveillance of a departing executive. CEO Tidjane Thiam resigned in February 2020 after it emerged that the bank had hired private investigators to follow former executive Iqbal Khan after he left to join UBS. The episode was damaging not for its financial consequences but for what it revealed about the culture and judgment of the bank’s leadership.

Consecutive Quarterly Losses — 2022

By 2022, Credit Suisse was reporting consecutive quarterly losses as provisions, restructuring charges, and declining revenues mounted. The bank announced a major restructuring plan in October 2022, including plans to spin off its investment banking business under the revived First Boston brand, raise CHF 4 billion in fresh capital, and cut thousands of jobs. The plan failed to restore confidence.

In October 2022, Credit Suisse shares hit historic lows as a social media-driven panic — sparked in part by a tweet suggesting a “major global investment bank” was on the verge of collapse — sent the stock plunging and prompted clients to accelerate withdrawal of funds.

The Final Crisis: March 2023

The trigger for Credit Suisse’s ultimate collapse came in the first two weeks of March 2023.

The US banking sector was already in turmoil. Silicon Valley Bank had failed on 10 March 2023 — the largest US bank failure since 2008 — and Signature Bank followed days later. Global bank stocks sold off sharply as markets contemplated whether regional bank stress in the US was the beginning of something larger.

In this environment, Credit Suisse’s Saudi National Bank — which had invested approximately $1.5 billion in the bank during the October 2022 capital raise, becoming its largest shareholder — publicly stated it could not provide additional financial support. It was a statement about regulatory constraints on share ownership concentration, not a judgment of Credit Suisse’s creditworthiness, but in the context of the moment it proved catastrophic for market confidence.

Credit Suisse’s share price collapsed. The bank faced deposit outflows of approximately CHF 10 billion per day — a bank run in the most literal sense. Credit default swap spreads implied imminent default. Overnight, Credit Suisse had gone from a wounded but surviving institution to one facing existential liquidity pressure.

The Swiss National Bank provided emergency liquidity assistance — CHF 50 billion under the Emergency Liquidity Assistance framework — but it was insufficient to stabilise confidence.

The Emergency Weekend

Over the weekend of 18-19 March 2023, Swiss authorities — FINMA, the Swiss National Bank, and the Federal Finance Department — orchestrated one of the most significant emergency interventions in banking history.

FINMA and the Federal Council concluded that Credit Suisse could not open for business on Monday morning without the certainty of a solution. The institution’s viability had become contingent on a transaction that weekend.

UBS, initially reluctant, was brought to the table. The Swiss government offered substantial sweeteners: government guarantees of up to CHF 9 billion for certain Credit Suisse risk positions, CHF 100 billion in SNB liquidity facilities for UBS, and emergency changes to Swiss corporate law to allow the merger to proceed without shareholder votes.

The final terms announced Sunday evening:

• UBS would acquire Credit Suisse for CHF 3 billion in UBS shares — equivalent to 0.76 UBS shares per Credit Suisse share, or CHF 0.76 per Credit Suisse share at the time of signing
• At market close on the Friday before the announcement, Credit Suisse shares had traded at approximately CHF 1.86
• Credit Suisse shareholders thus received roughly 40 cents on the dollar relative to the market price from just days earlier

The AT1 Wipeout

Perhaps the most consequential and controversial element of the Credit Suisse resolution was the treatment of its Additional Tier 1 (AT1) bonds.

AT1 bonds — also known as contingent convertibles or CoCos — are a form of hybrid bank capital designed to absorb losses. When a bank’s capital falls below a trigger threshold, AT1 bonds can be converted into equity or written down. They are designed explicitly to be loss-absorbing. However, the normal hierarchy of claims places equity holders below bond holders — so equity gets wiped out first, then AT1 bonds, and only then senior creditors.

FINMA invoked emergency powers to write CHF 17 billion of Credit Suisse AT1 bonds to zero while Credit Suisse shareholders received CHF 3 billion. AT1 bond holders received nothing while equity holders received something — an inversion of the standard creditor hierarchy.

FINMA’s justification was that the specific terms of Credit Suisse’s AT1 prospectuses permitted this treatment under Swiss law and the emergency measures invoked. This interpretation was legally contested in multiple jurisdictions. The Swiss Federal Administrative Court received numerous challenges.

The global implications were significant. AT1 bonds from European banks — approximately €250 billion outstanding globally — sold off sharply as investors questioned whether the assumed creditor hierarchy could be relied upon. Central banks and regulators in the EU and UK issued statements clarifying that they would maintain the normal hierarchy in their own jurisdictions. The Credit Suisse AT1 wipeout is now studied in every serious curriculum on bank resolution.

FINMA’s Performance Under Scrutiny

FINMA’s handling of the Credit Suisse crisis attracted substantial criticism. Parliamentary and independent reviews raised questions about:

• Whether FINMA had moved decisively enough in 2021-2022, when Credit Suisse’s problems were already serious, to impose binding remediation requirements
• Whether supervisory tools available to FINMA were exercised with sufficient urgency
• Whether FINMA’s communication with the Federal Council and SNB during the final crisis was adequately coordinated

FINMA itself acknowledged that the Credit Suisse case revealed limitations in its supervisory toolkit. The institution subsequently engaged with parliamentary processes on strengthening its enforcement powers, including the ability to impose direct financial sanctions — a power FINMA notably lacked at the time of the Credit Suisse collapse.

Aftermath: Integration and Reform

UBS has been engaged in the integration of Credit Suisse since the closing of the transaction in June 2023. Key elements:

Job cuts: UBS announced global workforce reductions of approximately 35,000 positions over several years — the majority from Credit Suisse operations. The scale of the integration represents the most significant financial sector employment restructuring Switzerland has seen.

Investment banking exit: UBS has been systematically winding down Credit Suisse’s investment banking operations, the most volatile and capital-intensive part of the combined business, to refocus on the wealth management and Swiss banking activities where UBS has its strongest competitive advantages.

Swiss domestic banking: Credit Suisse (Schweiz), the Swiss domestic banking subsidiary, has been retained as a significant component of the combined Swiss banking franchise.

Capital position: UBS emerged from the merger with a substantially stronger capital base than anticipated, partly due to negative goodwill created by the below-book-value acquisition price.

“Too big to fail” reform: The Swiss parliament has debated extensive reform of the too-big-to-fail framework. A parliamentary commission report on the Credit Suisse collapse called for significantly higher capital requirements for systemically important banks, greater FINMA enforcement powers, and structural reforms to reduce the systemic risk of a single institution whose balance sheet exceeds Swiss GDP. Legislative reform is ongoing.

A Country with One Global Bank

The Credit Suisse collapse left Switzerland with a single global universal bank — UBS Global Wealth Management — where it had previously had two. This concentration carries its own systemic risks — UBS’s balance sheet substantially exceeds Swiss GDP — and its own competitive implications: fewer options for corporate clients, reduced competition in investment banking services, and a single domestic institution carrying the Swiss financial system’s global reputation.

The Credit Suisse collapse will be studied in business schools, central banks, and regulatory institutions for decades. For an overview of how Swiss private banking has reorganised around the UBS-dominated post-merger landscape, see our dedicated analysis. It was simultaneously a case study in accumulated institutional failure, a demonstration of how confidence can evaporate in hours in a connected financial system, and an example of the extraordinary tools that modern states can deploy when systemic stability is genuinely at stake.

Donovan Vanderbilt is a contributing editor at ZUG FINANCE. This article is informational and does not constitute investment or financial advice.