Credit Suisse & SVB Collapse: Are Your Deposits and Investments Safe With Banks?

Will the fallout of SVB and Credit Suisse have a knock-on effect on your finances? Is your money safe at the bank?

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On March 10, news of the dramatic fallout of Silicon Valley Bank (SVB) sent shockwaves worldwide. But just as people were coming to grips with what was happening, Signature Bank followed SVB to become the second bank to implode in a matter of days. 

The US government eventually bailed out the two US banks, and regulators assured customers their deposits were safe. So crisis averted…or so we thought. 

Days later, Credit Suisse, the world’s financier for the rich, made the headlines after it was reported that the Swiss bank was facing a liquidity crunch and had to be bailed out by the Swiss central bank. 

The collapse of these banks has quenched fears that a banking crisis is around the corner. More importantly, they have also raised questions such as: do these events have a knock-on effect on your finances? And is your money safe at the bank?

But first, a quick explanation of the collapse of SVB and Credit Suisse.

• What happened to SVB and Credit Suisse?
• Are Singapore banks at risk?
• Are my money and investments safe at the bank?
• Implications of SVB’s fallout and the Credit Suisse buyout

TL;DR: what happened to SVB and Credit Suisse?

SVB

SVB was one of the top 20 banks in the US and had assets worth about US$209 billion (about S$280 billion) as of December 2022. The bank was primarily known as the preferred bank for tech start-ups and venture capital firms.

During the pandemic, the bank experienced exponential growth in deposits and assets and decided to invest in safe assets like US Treasurys and other government-backed long-term bonds. While these assets had relatively low risks, they also had low returns.

However, as interest rates rose in response to inflation, the fixed-interest payments couldn’t keep up with rising interest rates. This meant their investments were decreasing in value and was no longer worth what the bank had paid them.

In the meantime, some of SVB’s customers were going through financial difficulties themselves, and many had to withdraw funds from their accounts. 

To accommodate these large withdrawals, SVB decided to sell its bonds at a loss of US$1.8 billion (S$2.4 billion). It also announced selling its common stock to raise US$2.25 billion (S$3.01 billion) in capital.

However, its stock crashed in the market. To make matters worse, customers were afraid that the bank would collapse and began withdrawing their money. SVB faced a total of US$42 billion (S$56 billion) in attempted withdrawals. 

As SVB didn’t have enough capital to cover the withdrawal requests, US regulators had to step in and shut the bank down. They also announced emergency measures to allow customers to withdraw their money. 

Credit Suisse

Technically, Credit Suisse didn’t collapse (although it edged close) as it was given a lifeline after the Swiss central bank decided to inject CHF 50 billion (S$72 billion) to save it. 

Credit Suisse is the 45th largest bank in the world in terms of total assets. According to S&P Global, it had about US$1.1 trillion (S$1.47 trillion) in assets as of 2021. 

Of the two, Credit Suisse made the more prominent headline because 1) the 167-year-old Swiss bank is one of the biggest banks in the world, 2) it’s among only the 30 banks recognised as a “global systemically important bank”, and 3) because the Swiss banking system is also reputed for its financial stability. 

So how did one of the biggest banks in the world suddenly fall?

Long story short, Credit Suisse has been struggling for years. The bank was involved in high-profile scandals and financial losses over the years, which cost billions of dollars. 

Source

Here’s how it went down:

• 2014: Credit Suisse pleaded guilty to allowing several US clients to evade their taxes. It paid US$2.6 billion (S$3.4 billion) as part of the settlement
  

• 2019: the bank was involved in an accounting scandal with Luckin Coffee, acting as its underwriter when the company went public on the Nasdaq. The Chinese firm eventually pulled off from the US exchange after it fraudulently inflated sales
  

• 2020: CEO Tidjane Thiam resigned after two high-profile spying scandals involving top bank officials
  

• 2021: Credit Suisse’s reputation was damaged further after the collapse of US hedge fund Archegos Capital, causing the bank to lose US$5.5 billion (S$7.3 billion). Investigations revealed that Credit Suisse allowed Archegos to take “voracious” and “potentially catastrophic” risks
  

• 2021: sell-off in Credit Suisse shares started from losses caused by the collapse of Archegos and financial firm Greenstill Capital, causing the bank to lose US$5 billion (S$6.7 billion) and US$10 billion (S$13 billion), respectively
  

• 2022: Credit Suisse experienced a sharp increase in customer outflows after quarterly losses and compliance failures. To reassure investors, chairman Axel Lehmann said its net asset outflows had declined but “not yet reversed.”
  

• 2022: the bank was also found guilty in cocaine money laundering charges related to a Bulgarian drugs ring
  

• 2023: Credit Suisse’s stock plunged to all-time lows after the bank posted an annual loss of CHF 7.29 billion (S$10.5 billion). It also confirmed that clients had pulled out CHF 110 billion (S$158 billion)
  

• 2023: Saudi National Bank, Credit Suisse's top backer, said it wouldn’t give more money to the bank due to regulatory constraints
  

• 2023: Switzerland’s biggest bank, UBS, agrees to buy its rival, Credit Suisse, for CHF 3 billion (S$4.34 billion). Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF 0.76 (S$1.12) per share

Are Singapore banks at risk?

Following the news of SVB’s collapse, the Monetary Authority of Singapore (MAS) said it’s “closely monitoring” its domestic financial system and international developments. It also noted that Singapore’s banking system “remains sound and resilient amid heightened volatility in global financial markets”.

“MAS stands ready to provide liquidity through its suite of facilities to ensure that Singapore’s financial system remains stable and financial markets continue to function in an orderly manner.”, according to a statement released on March 13.

In the aftermath of Credit Suisse’s fall, MAS reiterated that there’s no reason to be worried about a knock-on effect on Singapore’s banks.

“Singapore’s banking system remains sound and resilient. Singapore banks have confirmed that their exposures to Credit Suisse are insignificant”, it said in another statement on March 16. 

After UBS's announced takeover, MAS added on March 20, "Credit Suisse Group will continue operating in Singapore with no interruptions or restrictions". 

Are my money and investments safe at the bank?

The MAS supervises banks and licensed finance companies in Singapore. MAS aims “to ensure the stability of Singapore’s banking system and to require all financial institutions to have sound risk management systems and adequate controls”.

Even so, given the events that have unfolded in recent days, you may be worried about your money should your bank collapse.

In Singapore, the Deposit Insurance Scheme, administered by the Singapore Deposit Insurance Corporation (SDIC), offers protection for all deposits with a member bank of up to S$75,000 per depositor per scheme.

The Deposit Insurance Scheme ensures all SGD deposits in standard savings, current, or fixed deposit accounts. It also covers monies placed under schemes such as the Supplementary Retirement Scheme (SRS), CPF Retirement Sum Scheme, and CPF Investment Scheme (CPFIS). 

In other words, if your account has S$75,000 or less, you would get all your money back if your bank or finance company falls. Unfortunately, you wouldn’t be insured for any money above that threshold — the same goes for schemes such as CPFIS. 

As such, you may want to keep your monies with separate banks if you have more than S$75,000 in one bank.

(But then again, if you’re sitting on so much money, investing in investments that offer higher returns is better. Just remember to save enough emergency funds for unexpected expenses.) 

However, remember that your monies in a bank are aggregated together and not per account. So even if you have multiple accounts in a bank, you’ll still be insured up to S$75,000.  

Some deposits and products are also not insured by the Deposit Insurance Scheme. These include:

• Foreign currency deposits
• Structured deposits
• Structured notes
• Investment products such as shares and unit trusts
  

Implications of SVB’s fallout and the Credit Suisse buyout

While the closure of SVB may have limited repercussions for now, there could be collateral damages in the foreseeable future. 

US start-ups or Singapore businesses with exposure to SVB could face problems such as raising funds or paying salaries if they operate or have clients in Singapore.

Additionally, Singapore investors who invest in mutual funds managed by Morgan Stanley, Fidelity, and BlackRock could also be affected as these investment firms are among the most exposed to the collapse of SVB, according to a Reuters report based on Morningstar data. 

On the other hand, the Credit Suisse buyout is also subject to controversy. 

While Credit Suisse shareholders will receive payouts as part of the takeover deal, other investors aren’t so lucky. 

According to the Swiss regulator FINMA, CHF 16 billion (S$23 billion) worth of additional tier-one bonds, also known as AT1 bonds, will be written to zero. As such, AT1 bondholders will see their investments wiped out and won’t receive compensation.  

But experts said the move shouldn’t come as a shock. 

“AT1s are there to absorb losses, so it’s not a surprise,” said Elisabeth Rudman, global head of financial institutions at DBRS Morningstar, as reported by CNBC. “They’ve done what they were supposed to do.”

AT1 bonds are bank bonds that were designed after the 2008 financial crisis as a way for banks to liquidate their capital so that a taxpayer bailout is less likely. 

They’re considered risky investments as they’re a form of junior debt. As such, they offer higher yields and are often bought by institutional investors. 

They’re also called contingent convertibles or “CoCos”, as they can be converted into either equity or written off to zero in specific scenarios. 

For example, when a bank gets into financial trouble, AT1 bonds can be quickly converted into equity as a contingency measure. Hence, these bondholders stand to lose their investments entirely or end up with equity holdings in a troubled bank.

Meanwhile, wealth managers and private bankers also expect Singapore to see more client requests and fund movements in light of the Credit Suisse catastrophe. 

Citibank Singapore Chief Executive Office Brendan Carney said that Singapore's political stability, transparent government policies, and pro-business environment remain intact.

Chew Mun Yew, Head of Private Wealth at UOB also expects Singapore banks to see increased activities, noting that UOB has seen a healthy increase in net new money inflow since the start of January this year.

DBS Private Bank Group Head Joseph Boon said the bank is also seeing more interest from investors amid recent uncertainty, particularly in areas of succession planning and wealth preservation. 

Indeed, he added that there's growing interest in high-quality fixed income investments and alternative investments such as private equity, gold, and hedge funds.

Swiss authorities open investigation into UBS-Credit Suisse merger

It was reported on 3 April that Switzerlands' Federal Prosecutor has also opened an investigation into the Credit Suisse takeover for "numerous aspects of events around Credit Suisse" and possible "criminal offences".

"The Office of the Attorney General wants to proactively fulfil its mandate and responsibility to contribute to a clean Swiss financial centre and has set up a monitoring system so that it can take action immediately on any issues that fall within its area of responsibility," according to a statement issued on 2 April. 

The takeover was understood to be backed by the Swiss government and was said to have angered taxpayers and shareholders of both banks, who were denied a chance to vote in the takeover.

On top of this, it was also reported that the UBS-Credit Suisse takeover could cut up to 36,000 of their combined workforce. 

During Credit Suisse's annual general meeting on 4 April, Credit Suisse Chairman Axel Lehmann told shareholders that he was "truly sorry" for bank's collapse and takeover by UBS.

“It is a sad day for you and for us too. I can understand the bitterness, the anger and the shock of all those who are disappointed, overwhelmed and affected by the developments,” Lehmann said at the bank’s annual meeting.

“I apologise that we were no longer able to stem the loss of trust that had accumulated over the years, and for disappointing you.”

“Until the end, we fought hard to find a solution, but ultimately there were only two options: deal or bankruptcy. The merger had to go through.”

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