US authorities examine whether Credit Suisse misled investors before its bailout

U.S. authorities are seeking evidence from Credit Suisse to determine whether the bank misled investors about its financial health as it moved toward a state-backed bailout by UBS six months ago.

Credit Suisse “has received requests for documents and information” from agencies including the U.S. Securities and Exchange Commission, the U.S. Department of Justice and Swiss regulator FINMA, UBS said in a statement. financial document dated August 31. In its second-quarter report, UBS also said three U.S. class action lawsuits had been filed against Credit Suisse, as well as its current and former directors, alleging misleading statements about client cash withdrawals in late 2022.

Credit Suisse, now part of UBS, is cooperating with authorities, UBS added in the filing.

UBS stepped in in March to save its rival in a government-orchestrated bailout after tens of billions of dollars left Credit Suisse amid a crisis of confidence in a market already shaken by the collapse of some lenders American regional.

The biggest banking deal since the global financial crisis created a lender with a $1.7 trillion balance sheet. Investigations now highlight a potential risk of fines and penalties for UBS.

Credit Suisse and an SEC spokesperson declined to comment, while UBS and the Justice Department did not respond to requests for comment.

FINMA monitors the bank very closely and requests the necessary information and documents as part of its supervision, a spokesperson said, declining to comment on this particular case.

Reuters could not determine what disclosure period the SEC, DOJ and FINMA are reviewing or which Credit Suisse employees, if any, might be targeted.

In late February, Reuters reported that FINMA was examining whether remarks made by then-Credit Suisse Chairman Axel Lehmann about stabilizing capital outflows in early December were potentially misleading. Credit Suisse and Lehmann did not comment on the matter at the time.

On March 10, the regulator said it did not see sufficient grounds to take action against the bank in the matter.

Lehmann did not immediately respond to a request for comment Tuesday.

Credit Suisse was hit by capital outflows of 110.5 billion Swiss francs ($124 billion) in the last three months of 2022, pushing the bank to the brink. These outings continued in the first half of 2023.

In the early hours of March 16, Credit Suisse announced its intention to borrow from the SNB through a facility called Emergency Liquidity Assistance (ELA) to “preemptively” strengthen its liquidity reserves.

But after Credit Suisse assured that the 50 billion franc injection would facilitate its recovery and told its staff and clients that its business remained viable, the bank needed more liquidity and lacked guarantees to give as a guarantee to the central bank.

A FINMA filing on Credit Suisse’s additional Tier 1 bonds dated March 19 – the day the rescue merger was announced – indicated that by mid-March Credit Suisse was on the verge of falling into below minimum levels of liquidity held by the Swiss central bank, putting its ability to make payments properly at risk.