Account full of holes at Credit Suisse

March 15, 2023. Account full of holes at Credit Suisse

Just when you think things really can’t get any worse at Credit Suisse, along comes another banana skin. This time Switzerland’s second biggest bank has admitted to “material weaknesses” in its internal controls and conceded that it has not in fact yet succeeded in stemming client outflows.

At the best of times this is not a good look for an institution in charge of £1.1 trillion worth of the world’s deposits and investments. In the middle of the worst jitters over bank safety for 15 years, it is doubly awkward. Coming weeks after both the chairman and chief executive had given the impression that the outflows had bottomed out, it is also deeply embarrassing. Markets gave their own unambiguous verdict. Credit default swaps on Credit Suisse debt hit a record, meaning it is more costly than ever for investors to insure against the group defaulting. The shares slumped by 4 per cent at one point yesterday, though they rallied on the back of a worldwide bounce in bank stocks.

Name any fraud or scandal of recent years and Credit Suisse seems to have been caught up in it — from Archegos and Greensill to Wirecard and the “tuna bonds” affair in Mozambique. The revolving door never stops spinning either, notably pushing out familiar City figures including Tidjane Thiam, the ex-Pru boss who got caught up in a management spying spat, and António Horta-Osório, the former Lloyds chief kicked out after breaking lockdown rules. The bank desperately needs a quiet spell of shock-free stability. But the board is guaranteeing no such thing, warning instead that those newly discovered weaknesses could well produce more horrors. It will make another loss this year, it added.

It’s only 24 hours since HSBC did the noble thing and came to the rescue of Silicon Valley Bank’s UK arm. Couldn’t the Swiss authorities find a boring financial institution with a rock-solid balance sheet to do the same for Credit Suisse with a confidence-restoring knockout bid? On any normal measure it looks dead cheap, after all, valued today at less than £8 billion. Sadly, the one thing investors have come to learn about Credit Suisse is that it can always get cheaper still.

Rich pensions relief

Rishi Sunak’s advisers were wise to get out early the news that Jeremy Hunt, the chancellor, plans to loosen the rules for better-off pension savers. Giveaways for the lucky minority with £1 million pension pots is all well and good but it will not be the voter-pleasing headline he wants to see when the budget is announced.

Liz Truss and Kwasi Kwarteng learnt the hard way with their ill-fated plans to abolish the 45 per cent top rate of tax that these types of measure play badly in a cost-of-living squeeze. The increase in the £1.07 million lifetime allowance to as much as £1.8 million may well stop a few doctors and other highly paid professionals retiring early. It will also help prevent more moderate earners starting to get caught by a penal tax rate of as high as 55 per cent on savings. The allowance, after all, has now more than halved in real terms since its introduction in 2006.

A reported rise in the annual allowance from £40,000 to £60,000 will also help people with lumpy incomes. But perhaps a more useful reform, if Hunt is serious about getting retirees back to work, would be a change to something called the money purchase annual allowance. This esoteric rule restricts people who have already retired but want to return to the workplace from pension saving of more than £4,000 a year. That is catching those who are starting to discover they retired too early and need a few more years of pension saving under the belt.

Most important, however, is that any changes to allowances should be modest enough to be lasting, so that they are not reversed by future chancellors. Past cuts have dented confidence in pension saving, added to complexity and made it difficult to plan. A bigger question is whether pension tax relief overall needs a rethink. It is by far the biggest single category of relief, costing the exchequer £42.7 billion a year, according to HM Revenue & Customs data. That compares with just £3.1 billion of relief bestowed on R&D spending. For a country needing to boost feeble productivity growth, that seems out of whack.

Britishvolt burn

The creditors list for the Britishvolt bankruptcy is a baleful reminder of how whizzy ventures launched by silver-tongued entrepreneurs can produce real casualties. Suppliers who gave the gigafactory group credit will get less than a penny in the pound back, according to the administrators, EY.

This is far wider than just a few consultants, like McKinsey, who will wave goodbye to £2.84 million, or lawyers, like Dentons, who are down £3.83 million. The University of Warwick will kiss goodbye to £1.04 million, while dozens of smaller businesses are out of pocket too. In total, EY reckons the non-preferential creditors amount to £130 million-£160 million. That’s an astonishing amount of credit to be extended to a business that turned out to be little more than a field in Northumberland and fine words.

Meta’s hatchet man

Mark Zuckerberg is finding his inner hatchet, and getting rewarded for wielding it. Having got rid of 11,000 jobs in November, the Meta chief is looking to cut 10,000 more. Meta’s share price has doubled since the layoffs began, adding $250 billion to its value. The digital world is learning a new truth: Wall Street loves deep cost-cutting almost as much as it once loved infinitely scalable tech.