In September of this year, Credit Suisse announced it would be shutting down its investment banking division. This came as a surprise to many, as the Swiss bank had been one of the most profitable and stable banks in the world. However, Credit Suisse’s collapse was not inevitable. There are a number of factors that contributed to the bank’s demise, and if these had been addressed, the bank could have avoided its current predicament.
The first factor that contributed to Credit Suisse’s collapse is its reliance on investment banking. For years, the bank had been one of the most profitable investment banks in the world. However, this came at a cost. Credit Suisse became increasingly reliant on investment banking revenues, to the point where it was accounting for a majority of the bank’s overall profits. This left the bank vulnerable to any downturn in the markets.
The second factor that contributed to Credit Suisse’s collapse is its exposure to the US subprime mortgage market. In the years leading up to the financial crisis, Credit Suisse was one of the largest lenders to the subprime mortgage market. This made the bank extremely exposed to the collapse of the housing market.
The third factor that contributed to Credit Suisse’s collapse is its aggressive expansion strategy. In the years leading up to the financial crisis, Credit Suisse acquired a number of businesses, including subprime lender New Century Financial. These acquisitions put the bank’s balance sheet under strain, and made it more difficult to weather the financial crisis.
The fourth factor that contributed to Credit Suisse’s collapse is its reliance on short-term funding. In the years leading up to the financial crisis, Credit Suisse became increasingly reliant on short-term funding sources, such as commercial paper and asset-backed securities. This made the bank extremely vulnerable to a credit crunch.
The fifth factor that contributed to Credit Suisse’s collapse is its exposure to the European sovereign debt crisis. In the years leading up to the financial crisis, Credit Suisse acquired a number of businesses, including subprime lender New Century Financial. These acquisitions put the bank’s balance sheet under strain, and made it more difficult to weather the financial crisis.
If these factors had been addressed, Credit Suisse could have avoided its current predicament. However, the bank’s management failed to address these issues, and as a result, the bank is now facing a bleak future.
