The US bank run has definitively spread to Europe with Credit Suisse shares plunging in trading and dragging down other major European bank stocks. The market has found its latest victim, but it is not fears of inadequate capital or funding that are driving investors, rather a lack of confidence in Credit Suisse management.

Credit Suisse thought it had its annus horribilis in 2022 with profit figures in the deepest red at CHF7.3 billion ($7.9 billion) and net client outflows of CHF123.2 billion ($133.3 billion) across its business (Swiss bank, Wealth Management, and Asset Management divisions) for the year. Few other private banks had a great 2022; fellow Swiss private bank Julius Baer reported weaker figures for 2022, and even market leader UBS suffered. 2022 was a bad year for wealth management, but crucially both of these players still posted net inflows and profits. Neither are overly troubled by the events in the US either. However, the bank run on US business and private banks serving the tech sector that began on March 10, 2023, is shaping up to be an existential crisis for Credit Suisse as well.

Credit Suisse has been singled out by investors not because it has undue links to the US tech sector, currently in recession, or to the US banks at the center of the crisis, nor indeed because it suffers from the same low capital buffers and narrow business focus that forced those US banks to sell parts of their bond portfolio at a loss. Credit Suisse has long been acknowledged as a Global Systemically Important Bank and so attracted extra attention from its regulators as well as being forced to hold additional capital. It is also one of the few truly global universal banks with operations from Sydney to New York. This is very unlike the ‘regional banks’ at the center of the US crisis, which were more lightly regulated, had relatively thin capital buffers, and operated in niches.

Instead, investors are selling down Credit Suisse stock and private clients are withdrawing funds (the bulk of outflows in 2022 were in the fourth quarter and concentrated in its Wealth Management division) because they have lost confidence in the bank’s management. The bank has been severely scandal-plagued in recent years with multiple large fines and prosecutions resulting. The bank’s announcement on March 14 that it had “identified material weaknesses in [its] internal control over financial reporting” and not yet stemmed customer outflows appears to have shattered the fragile investor confidence that management could successfully execute their turnaround plan while dealing with any fallout from the US bank run.

The Swiss National Bank and the Swiss financial regulator, FINMA, issued a joint statement pledging to backstop Credit Suisse late on Wednesday, March 15 after the bank lost 30% of its share value. Any doubts regarding its liquidity or balance sheet should be erased. It is a systemically important bank, and no one is going to let it fail. However, this does not in any way address the loss of confidence in management; rather it only confirms the negative investor sentiment. Until Swiss regulators and Credit Suisse restore confidence in management, there has been no resolution to the bank’s woes or its long-term viability.