The thread that connects Adani, Credit Suisse, and Karma

When trust is compromised, the biggest problem waits ahead. The same is the case with financial systems across the world. With a wave of banking falls in recent weeks, the trust in the banking systems of the world is declining, thereby causing a failure of the big fish in the ecosystem.

Credit Suisse nears collapse

Credit Suisse, Switzerland’s second-largest bank, trailing UBS Group, is on the verge of collapse. After the dramatic fall of California-based Silicon Valley Bank (SVB), distrust arose in the banking system, which was evident by the sell-offs in the shares of banks around the world, including Credit Suisse. The stock fell as much as 31%, hitting record lows.

But the biggest blow to Credit Suisse came from the Saudi National Bank. During an interview with Bloomberg TV, Chairman of SNB Ammar Al Khudairy denied any further financial assistance to the bank. When asked about it, he categorically said, ‘Absolutely not’. According to him, “the answer is absolutely not, for many reasons outside the simplest reason, which is regulatory and statutory.”

It is worth noting that the SNB is the single largest shareholder in Credit Suisse Bank, owning 9.9% of the company. The requirement of capital often prevents banks from acquiring and holding more than 10 percent of other banks. While he said other reasons, he was actually signaling towards the record of Credit Suisse.

Why did the SNB back off?

He further said that the SNB’s investment in Credit Suisse was opportunist, and the Saudi National Bank would exit when proper value had been acquired for the shares. The timing was highly unfavourable, with investors already on edge due to other potential weak spots in the financial system. The remarks exacerbated worries about the bank’s profit-making capabilities and increased the likelihood of another round of fundraising from shareholders. This led to a surge in credit-default swaps as investors sought to shield themselves from the possibility of a Credit Suisse default. In tandem, the bank’s stocks took a massive hit, dropping by 24% in a single day, the largest drop ever recorded. Furthermore, prices on its bonds fell to levels indicating financial distress.

Twitter takes on Credit Suisse

In between all this ruckus, Indian Twitter users are calling it “Karma,” which pays back. People are linking the bank’s worst crisis with the Adani-Hindenburg row. Actually, when Hindenburg released its controversial and propaganda report, the Adani Group came under absolute pressure from the stock market, where the group’s shares plunged steeply to an all-time low.

The group faced staunch criticism from across the world. But, upon closer inspection, it was clear that the entire report was a piece of garbage designed to create a frenzy in order to profit from short selling. But some western civil societies and financial institutions sought to fulfill their sinister interests and Credit Suisse was one of them.

Actually, after the release of the report, Credit Suisse was the first bank to stop accepting bonds as collateral for margin loans of some of the group entities of Adani Group.

Credit Suisse says won’t accept Adani bonds as collateral
and now just in 45 days… Any one won't accept CREDIT SUISSE….😂😂😂
KARMA
— Pranav Shah (@PranavShah308) March 15, 2023

Karma⚡️Credit Suisse which which was first to assign Zero Lending Value to Adani Group Bonds following Hindenburg allegations and supported the hit job, is in Deep trouble.#CreditSuisse 's biggest backer, Saudi National Bank, has said We cannot increase stake because we cannot… https://t.co/AOAnVL41dT pic.twitter.com/qiMrdpuQMD
— Megh Updates 🚨™ (@MeghUpdates) March 15, 2023

Let us understand it simply. Margin loans are the loans that allow you to borrow money to invest by using your existing shares, managed funds or cash as collateral. But after the Adani Group was targeted, Credit Suisse refused to accept those bonds as collateral, which mounted extra financial pressure on the group, thereby further deteriorating the value of its shares.

But as of now, The Adani Group is again gaining momentum in the stock market. And Credit Suisse, which became part of the hit-job in Adani’s case, is now in the worst financial crisis that it could have barely imagined a month ago.

Why was Credit Suisse vulnerable?

Now, one can say that, being a banking institution, the decision of Credit Suisse was prima facie justified. However, the reality is far different from that. But before that, we should ask the question—even before the SNB chairman’s interview—why was the bank in crisis in the first place?

Actually, after the fall of Silicon Valley Bank (SVB), the lack of trust took over the stock market. As a result, the share values of Credit Suisse also started to plummet. This was just because of the bank’s past records.

Back in 2008, the world was hit by the century’s first and worst economic crisis. In the wake of the crisis, Credit Suisse came under criticism because of poor risk management practices. The bank was found to have invested heavily in high-risk assets, which ultimately led to significant losses for the institution and its clients. Apparently, current situations in the market are not completely different.

But it was just a single example. Credit Suisse has lost the trust of the public in almost every half decade since then. Credit Suisse was fined $2.6 billion by the US government in 2014 for assisting its clients in tax evasion. And it was not just an allegation; instead, the bank admitted to helping wealthy Americans hide assets and avoid taxes for decades.

Again in 2019, Bank came to the limelight for not so good reasons. Credit Suisse was embroiled in a spying scandal in which the bank was accused of spying on its own employees. The bank’s former chief operating officer and head of human resources were both fired following the revelation.

Finally, the most recent controversy involving the bank occurred only two years ago. In 2021, Credit Suisse was one of several banks that suffered significant losses due to the collapse of Archegos Capital Management, a hedge fund. Credit Suisse was criticized for its risk management practices and for failing to act quickly enough to address the situation.

Karma Pays!

After so many wicked financial deeds, the credibility of the bank was almost at zero. And this proved to be the root cause of growing distrust for the bank among shareholders as well as the Saudi National Bank.

Credit Suisse is now in deep waters, and it is hard to come out of it on its own. While Adani Group has started to emerge again. In a recent update, Switzerland’s biggest bank is now eyeing taking over the Credit Suisse bank after the authorities urged it to get a deal over the line, in a bid to avoid panic in the market.

This is the best example of the foreign banks’ prejudice regarding Indian companies and shows how the growing Indian business institutions sting in their eyes. So, it can be said indeed that after a few weeks of its take on Adani Group, now it is Karma that is paying off.