Earlier this week, securities class action lawsuits were filed against the recently failed U.S. banks, Silicon Valley Bank and Signature Bank. The turmoil that surrounded those banks’ failure sent ripples into the global banking industry; one of the institutions particularly affected by the ensuing turbulence was the European banking giant, Credit Suisse. After a series of events at the bank earlier this week (described below), the company’s share price tanked, the Swiss banking regulator extended the bank a financial lifeline – and the bank was hit with a securities class action lawsuit, the third this week involving a bank caught up in the sudden wave of banking industry disorder. The new lawsuit filed on March 16, 2023, against Credit Suisse can be found here.
The Zurich-based Credit Suisse is no stranger to difficulties and controversies. It has an unfortunately long history of problems and entanglements, including run-ins with regulators over issues concerning money laundering, facilitating tax evasion, and involvement with oligarchs and kleptocrats.
The latest most recent round of difficulties at the bank kicked off on March 9, 2023, when the Swiss bank announced that it was delaying the publication of its annual report after a call with the SEC regarding the company’s cash flow statements for the 2019 and 2020 reporting years, as well as related controls.
On Tuesday, March 14, 2023, the company released its delayed annual report, and at the same time it had to announce that it had found “material weaknesses” in its financial reporting processes for 2022 and 2021. The financial markets, already uneasy because of the failures of two U.S. banks just days before, did not take this news well. The news also accelerated depositor withdrawals from the bank, which, according to news reports, had started picking up as early as October 2022.
The company’s share price was already under pressure based on the news about the internal control issues, and it took a further hit after press reports that the bank’s largest shareholder, the Saudi National Bank, would make no further investment in Credit Suisse. A further statement clarified that the reason the Saudi bank would make no further investments was due to regulatory constraints, but the clarification didn’t seem to help. According to the subsequently filed securities class action lawsuit complaint, the company’s share price declined almost 14% on this news.
Because of the turmoil surrounding the bank, on Wednesday March 15, 2023, the Swiss National Bank announced that, while Credit Suisse was, in the words of the regulator, “well capitalized,” the regulator was prepared to extend additional liquidity to the bank if necessary. On Thursday, March 16, 2023, Credit Suisse issued a press release saying that it intended to exercise its option to borrow up to 50 billion Swiss francs under a short-term lending facility from the Swiss National Bank.
On March 16, 2023, a plaintiff shareholder filed a securities class action lawsuit in the District of New Jersey against Credit Suisse, and four of its executives, including its Chairman, Axel P. Lehmann, and its CEO, Ulrich Korner. The complaint purports to be filed on behalf of investors who purchase the companies American Depository Shares (ADSs) between March 10, 2022, and March 15, 2023.
The complaint notes various statements in the company’s SEC filings during the class period to the effect that its “disclosure controls were effective, in all material respects.” The complaint also cites various statements in the press of the bank’s executives to the effect that the withdrawals from the bank that had started in October 2022 had “flattened” and even started to “reverse.” The complaint also cites the news described above regarding the company’s internal control disclosures and the Saudi bank’s announcement that it would invest no more in the bank.
The complaint alleges that during the class period, the defendants failed to disclose that: “(1) as opposed to contrary statements, that the Company was experiencing significant outflows throughout its fourth quarter ; (2) the Company was experiencing material weaknesses with internal controls; and (3) as a result, Defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all times.”
The new lawsuit against Credit Suisse was filed by The Rosen Law Firm, the same law firm that earlier this week filed securities class action lawsuits against SVB and Signature Bank. (A second lawsuit has also been filed against SVB; the complaint in the new lawsuit is substantially similar to the first of the SVB securities lawsuit complaints.) The law firm’s attorneys clearly have decided to zero in on the current turmoil in the banking sector, and to do so in a way to try to secure whatever benefits there are to being the first to file.
All three of the lawsuits are, shall we say, thin, but that is particularly the case with the Credit Suisse lawsuit. The complaint has only just been filed, and it remains to be seen how it will fare. However, when the time comes for the court to examine the sufficiency of the allegations in the complaint, the Court is going to struggle to find anything in the complaint sufficient to meet the plaintiff’s obligations to plead scienter.
While the complaint cites the company’s internal control disclosures and the news that the Saudi bank would invest no further in Credit Suisse, the complaint omits any mention of the Swiss banking regulator’s extension of a financial lifeline to the bank, and of the bank’s statement of its intent to access the regulator’s short-term lending facility. The complaint also does not mention that on the news of the bank’s access to the lifeline, the company’s share price on the Zurich stock exchange rose more than 19%. The price movement of its U.S.-listed ADRs was more mixed, closing essentially flat.
There is some irony that the plaintiffs’ lawyers have gone ahead and filed the lawsuit notwithstanding the Swiss banking regulators financial lifeline. The short-term credit facility should stabilize Credit Suisse, at least in the short term. However, as the Wall Street Journal noted with respect to these moves, the hard part may still lie ahead for the Swiss bank. It still has to go forward in a way that calms markets and depositors and the stems the withdrawals that have plagued the bank. It will be a while before it is clear how all of this will play out. But because the story is still yet to be told, the lawsuits seems, at best, premature. At a minimum, with the omission of any reference to the Swiss banking regulator’s financial lifeline, the new complaint also seems, at best, incomplete.
Whether or not there are any further securities suits arising out the current instability in the banking sector remains to be seen. Will there be further bank failures, or other banks like Credit Suisse that get caught up in the turbulence? Whatever may prove to be the case, it is clear that the story of the current turmoil in the banking sector has further to go. The joint press release by the Department of Treasury, the FDIC, the Treasury Department and the OCC issued on March 16, 2023 to the effect that 11 banks had come together to deposit $30 billion in First Republic Bank underscores the fact that the disruption in the banking sector is continuing to unfold. Stay tuned.