US regulators favour big sticks over speaking softly when dealing with foreign banks. For this reason, even low-key technical accounting queries from the Securities and Exchanges Commission smack of a rebuke. Doubly so when they arrive just before a bank — Credit Suisse — is due to publish its latest annual report.
The SEC’s queries do not appear to be material financially. They matter more as notification that the powerful regulator is closely scrutinising the activities of the shambolic lender.
The SEC’s intervention sent shares down a further 5 per cent, a hair’s breadth away from record intraday lows.
Queries relate to cash flows in 2019 and 2020 worth about Sfr3.4bn. These netted out to an understatement of just Sfr70mn. Credit Suisse said full-year results published last month would be unaffected. It has postponed publication of its 2022 annual report.
Foreign watchdogs privately regard Swiss financial regulation as too lax. Credit Suisse has a long list of offences over the past two decades and fines of about $10bn from US bodies.
Local peer Finma does not have the power to impose fines. Its recent acknowledgment that the Greensill debacle highlighted deficiencies in the bank was hardly a revelation. Investors will be closely watching how it deals with chair Axel Lehmann if his comments on client funds turn out to have breached rules.
Earlier this week, Credit Suisse shareholders learnt that top investor Harris Associates was selling out. The final quarter of last year was supposed to be rock bottom, yet bad news keeps coming. Steep outflows of deposits coincided with a collapse in revenues across multiple business lines.
The SEC’s concerns about Credit Suisse are justified. Contagion risk remains the biggest weakness of the world financial system. Last year, the Swiss National Bank tapped record dollar swap lines from the Fed, even as clients were pulling record amounts from Credit Suisse.
Tread carefully, Credit Suisse. Uncle Sam is watching you.
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