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  • 1.  Professional learning Episode: Governance lessons from the demise of Credit Suisse

    Posted 05-12-2023 09:47
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    CFA UK Professional learning. Governance lessons from the demise of Credit Suisse.

    Video 26 minutes 0.5 CDP

    Johann Scholtz, CFA, Equity Research Analyst, Morningstar explains why poor capital allocation decisions and relaxed corporate governance led to the demise of Credit Suisse, and why managing ESG risk is so crucial for banks to remain successful. Define: 

    §  The main ESG risk factors for banks, and why many of them fall under the 'G bucket' 

    §  How the market allocates a 30% premium on valuations for banks with low ESG risk 

    §  Why Credit Suisse failed because they didn't prioritise their balance sheet health when allocating capital 

    §  The litany of risk management failures that contributed to the downfall of the bank 

    §  What investors can learn about the importance of corporate governance and mitigating ESG risk 

    Aya Pariy

  • 2.  RE: Professional learning Episode: Governance lessons from the demise of Credit Suisse

    Posted 06-12-2023 13:17

    @Aya Pariy, thank you for sharing. One of the best webinars I've watched about CS failure. Very well explained.

    Perhaps, based on this video, it is possible to conclude that among E, S and G risks, CS suffers from G the most. As for now, unfortunately, the Basel Committee and EBA do not focus on G dimension (and even on S dimension) much when it comes to the disclosure of ESG risks. EBA obliges banks to perform quantitative assessment of physical and transition risks of their banking books as a part of pillar 3 disclosures. There are nearly 7 disclosure templates on climate risks that banks, governed by EBA, must submit. In turn, social and governance dimensions are addressed only qualitatively by EBA. The Basel Committee, in turn, requires banks to incorporate climate-related risks when computing RWAs for calculation of capital adequacy ratio. The question is whether "environmental" dimension should really be in the focus of regulators that much after the CS case. How useful are all those climate disclosures if banks failure start from the poor governance and inadequate capital allocation decisions. Perhaps, more attention to G will eliminate the need for comprehensive disclosures on E.

    Additionally,  Johann Scholtz, CFA mentioned that material ESG issues for banks are dominated by governance-related topics. This also rises a question if the focus of banks regulators should be shifted from E to G. 

    Inviting all the community members to share their thoughts on which of ESG dimensions is the most material for banks: E, S or G. What do you think?

    Anastasia Kuznetsova
    Associate Business Analyst

  • 3.  RE: Professional learning Episode: Governance lessons from the demise of Credit Suisse

    Posted 07-12-2023 09:54

    @Anastasia  You prompted me to watch Joseph's video.  It was a good governance case study about the Credit Suisse collapse and the current neglect of governance vs E and S but also the value of using governance analysis to understand valuations.  Specifically interesting that the division liquidation/restructuring costs to exit a loss making division was a hidden liability that might have been indicated by the recurring exceptionals as they internally tried to deal with internal problems.  All led to a run on the wealth management division.  If you are still interested in digging into governance scandals in Banks. Original CFA video by an analyst at Morningstar also illustrates Sustainanalytics methodology on governance with credit Suisse as a case study


    I do wonder how much of the information is post mortem and would not have been available while the problems were not publically available.  Either way lots of lessons to learn although to be honest the death by a hundred cuts and failure to have a robust and effective organisational structure as an outcome of the progressive cost cutting.  I am not a bank specialist but I do wonder if cost of orderly liquidation is a metric banks need to consider in their risk analysis and reporting to financial system authorities? And if this is a metric taken into account vs capitalisation.