Poor communications accelerated the demise of SVB and Credit Suisse


svb credit suisse demise

Over the past fortnight thousands of column inches have been devoted to examining the ongoing crisis engulfing the financial markets following the collapse of Silicon Valley Bank and the rushed acquisition of Credit Suisse by long time rival UBS. While the demise of the two institutions have different root causes there is a shared thread that links their downfalls, poor communications.

 

The financial mismanagement of SVB has been widely documented but a less publicised aspect of their approach that accelerated depositor withdrawals and shook investor confidence was the impenetrable and jargon-laden press release distributed two days before SVB’s eventual collapse.

Following the financial tremors caused by the failure of crypto bank Silvergate earlier that week, SVB had an opportunity to tell a clear story to customers, the media, and Wall Street about their plans to remedy their financial situation and reinforce their balance sheet. Instead, they issued a 250 word example of how not to do crisis communications, a press release replete with complex financial terminology that was not only inaccessible to 90% of its intended readers but failed to communicate SVB’s key message – we lost some money on poorly judged securities investments, but we are objectively financially stable and are taking active steps to further strengthen our position. The opening line of the press release reads as follows:

“SVB announced today that it intends to offer $1.25bn of its common stock and $500 million of depositary shares, consisting of 10 million depositary shares each representing a 1/20th in a share of its Series F Mandatory Convertible Preferred Stock, liquidation preference $1,000 per share in separate underwritten registered public offerings.”

This sentence flagrantly ignores the golden rule of controlling the narrative and capturing the reader’s attention in the first line of a press release. The unintended consequence of this impassable verbiage was to accelerate depositor withdrawals and intensify the panic that had already set in amongst its customer base thereby sealing SVB’s unwelcome fate.

Hot on the heels of this unfortunate episode was the rapid deterioration of Credit Suisse’s financial and reputational position, in part driven by ill-advised comments in an interview. This time it wasn’t from the institution itself, instead Credit Suisse’s then largest shareholder, Saudi National Bank (SNB).

The comments made by Ammar al-Khudairy, SNB Chairman, regarding the potential expansion of SNB’s 9.9% stake in Credit Suisse precipitated further market anxiety and provided an unhelpful backdrop to a series of events that culminated in the fire sale of one of Europe’s banking titans. In sum, Al Khudairy stated that SNB would not be injecting further capital into Credit Suisse as a result of regulatory and compliance issues. These comments were misinterpreted, and in some cases misreported, that SNB did not want to further invest in Credit Suisse, exacerbating market ructions that turned a major crisis into a terminal one for the 167-year old institution. Today saw al-Khudairy step down from his chairmanship of SNB for ‘personal reasons’.

These two blunders are a cautionary tale that amply demonstrate the destructive impact that uncoordinated and unclear communications can have in a crisis scenario when audiences hang on every word, tweet, interview and press release that beleaguered institutions and individuals issue. Other organisations in financially vulnerable positions take note.

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