Bailout of Credit Suisse Is a Bailout of Wall Street
March 16, 2023, 2022 (EIRNS)—The Swiss financial website In$ide Paradeplatz, gives interesting background information today on why the Swiss National Bank was forced to intervene in Credit Suisse with $54 billion, what they call “the largest bailout in history” in Switzerland. (Formally, the bailout of UBS in 2008 was larger, but it included taxpayers’ money, whereas this time it is only central bank money.)
An initial blow was given by the U.S. Securities and Exchange Commission (SEC) which, on March 8, blocked the publication of CS’s annual report. Why? Some irregularities were mentioned, but one can assume that they were so big, and with CS being a convicted felon in this field, that the SEC did not feel like allowing it this time. However, the action was a clear blow to Credit Suisse’s credibility.
The second blow came from the Saudi government (9.8% shareholders), as they refused to step in to the bailout. Chairman Ammar Abdul Wahed Al Khudairy of Saudi National Bank (the Kingdom’s largest commercial bank), in an interview with Bloomberg TV on March 15, categorically ruled out any further aid. Although Bloomberg cites “regulatory” reasons, it is nonetheless highly interesting, given the repositioning of Riyadh away from the collapsing Western system—especially because bailing out Credit Suisse meant bailing out Wall Street.
And the third aspect: According to In$ide Paradeplatz, “orders” were given to the Swiss National Bank to bail out CS, given Credit Suisse’s high exposure to American banks. CS can now meet its obligations in dollars, thanks to the swap agreement between the Fed and the Swiss National Bank.
The dimensions of the bailout are a scandal in itself. You could build three Gotthard Basis Tunnels—the largest infrastructure so far built in Switzerland—with that money. It will certainly have political repercussions. It is also more than the annual GDP of all but 12 of the countries in Africa.
And the question is, will it be enough? Pam and Russ Martens of Wall Street on Parade accurately point to the fact that U.S. banks are counterparties to CS derivatives, and that four banks retain 88.6% of all notional amounts of derivatives in the U.S. banking system. Furthermore, U.S. banks that are not directly exposed to CS, are exposed to banks that are.
All eyes were on Christine Lagarde today, who announced the European Central Bank decision on rates. As if nothing had happened, Lagarde announced another hawkish increase of 50 basis points.