Numbness to Uncertainty - Never Too Big to Fail

Investors have short memories. When markets are rallying, everyone feels like a genius and starts taking disproportional risks.  In the “When wind blows hard, pigs can fly” scenario, retail day traders make easy money, and even the craziest bets seem to work. Big banks and financial giants look unstoppable, until they’re not.  The same goes for corporates. But given how precious time is to everyone, we only picked out a few well-knowns.  

The market's been on a rollercoaster since April's tariff news hit. Stocks jump up and down with every new trade war update, but strangely, investors don't seem to care much anymore. Big swings that used to scare people now feel normal. The problem is, when everyone stops paying attention to risks, that's usually when trouble starts. Just because we've gotten used to the ups and downs doesn't mean the danger's gone away.

History shows us the same story again and again. From 2008 till today, several biggest investment banks on Wall Street collapsed in days. People thought they were untouchable and would never fall, but they were not. Now, as markets climb higher after the storm, the same reckless behavior is creeping back in.

Here’s the truth: nothing lasts forever. No bank, no hedge fund, no insurance company, no "too big to fail" institution is safe when the tide turns. The next crash isn’t a question of if, but when.

Same principle applies in the management of private wealth - choosing the right custodian and product issuers isn't just as important. It's as fundamental as it can be.

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From Lehman Brothers to the Rising of Nomura

Lehman Brothers stood as one of the most powerful investment banks in the world. By 2008, it ranked as the fourth largest globally, right after only Goldman Sachs, Morgan Stanley, and Bank of America Merrill Lynch in terms of influence and scale. For over 150 years, Lehman had been a pillar of Wall Street, financing corporations, governments, and complex financial instruments that fuelled global markets, particularly US Treasuries Trading.

Looking back, yet the firm was taking excessive risks where the bank had aggressively expanded into mortgage-backed securities in commercial real estate, building up an enormous exposure to subprime loans which were in fact junk-graded loans. When the U.S. housing bubble burst in 2007, Lehman found itself holding billions in toxic assets that nobody wanted. That time, Lehman's situation grew increasingly desperate, the bank tried to raise emergency capital from the government; however, the U.S. government, having just bailed out Bear Stearns months earlier, refused to step in this time, so the bank could only seek alternatives to find the potential buyers.

Subsequently, parts of Lehman's empire were sold off to various buyers. One of the most significant deals came from Japan's Nomura, which acquired Lehman's operations in Asia Pacific (including Japan, Hong Kong and Australia) and Europe (primarily London). For Nomura, this was a once in a generation opportunity to transform from a primarily domestic Japanese firm into a global investment bank. And now, Nomura is the largest stockbroker in Japan according to Bloomberg and one of the largest across Asia Pacific region.

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Industry Giant to a Titan

At the same moment during the subprime mortgage crisis, another Wall Street giant was fighting for survival. Merrill Lynch, the iconic and one of the America's most famous brokerage firms, stood on equally shaky ground. Like Lehman, Merrill had gambled heavily on mortgage-backed securities and was faced with catastrophic losses. But unlike Lehman, Merrill found a saviour - Bank of America.

The 2008 merger with Merrill Lynch transformed Bank of America from a primarily commercial banking with mid-tier investment bank into a full-service financial powerhouse by instantly elevating its investment banking, wealth management, and securities services, and today one of the top bulge bracket banks globally. Further, what Merrill brough to Bank of America is not just its presence, but also its trading capacities. Before the acquisition, Merrill Lynch was the Top ranked US Bond trading desk, particularly in the US High Yield. Till today, BofA Securities has been industry leading credit trading solution provider.

Apart from credit trading, Merrill Lynch level up BofA’s investment banking capacities, and upgraded its investment banking division into Wall Street's elite, particularly transforming its equity capital markets business. Prior to the merger, BofA's investment bank was a middle-tier player, strong in debt financing but overshadowed in equities. Merrill's powerhouse ECM franchise changed that overnight, bringing top-tier IPO execution, block trade expertise, and a deep roster of corporate relationships. More importantly, The merger also unlocked synergies: BofA's corporate clients gained access to Merrill's equity underwriting and advisory services, while Merrill's bankers could leverage BofA's low-cost funding for institutional financing.

Swiss Banking Giant to Swiss Champion

For 167 years, Credit Suisse stood as a pillar of Swiss banking, a global powerhouse serving wealthy clients, corporations, and institutional investors. Yet by March 2023, decades of scandals, risk management failures, and massive losses had eroded confidence in Switzerland's second-largest bank. As deposits fled and its stock cratered, Swiss regulators orchestrated a historic takeover by rival UBS.

Why Credit Suisse Failed

• Risk Management Disasters: From the Archegos Capital meltdown ($5.5B loss) to Greensill Capital's collapse, the bank repeatedly failed to tighten risk management culture.

• Scandal After Scandal: Money laundering fines, spying on executives, and a leak exposing thousands of suspicious clients/activities shattered trust.

• A Run on the Bank: In 2023, panicked clients withdrew $119 billion in Q1 alone, a downward spiral in which no bank could get out.

The shotgun marriage between UBS and Credit Suisse has created a financial behemoth with reinforced dominance in wealth management, but the deal’s hidden upside lies in supercharging UBS’s investment banking and global markets footprint. Particularly in Asia, Credit Suisse was a top-tier TMT advisor in Asia, leading deals for giants like Alibaba, Tencent, and SoftBank. However, the new combination impact in the market is yet to be seen.

However, when UBS bought Credit Suisse in March 2023, Swiss regulators made a controversial decision, they canceled all of Credit Suisse’s AT1 bonds ($17 billion worth) without paying a single cent to investors. Normally, bondholders’ seniority is higher than shareholders, this case, shareholders received something while AT1 holders got zero. While such merger preserved Credit Suisse survivability for the most part, AT1 holders didn’t fare the same.

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Conclusion

Banking is often seen as a stable sector, the reality is that banks can fail too, regardless of their size or reputation. The financial crisis and recent banking turmoil have shown that even the most trusted names can crumble when risk management fails, or market conditions shift dramatically. The fall of giants like Lehman Brothers and Credit Suisse proves even the biggest financial institutions can collapse, and these were because of “Internal Risk Management”, so whether you're picking a custodian to hold your assets or buying structured products, safety first. Go for strong, well-managed institutions with healthy balance sheets, avoid putting all your money in just one basket.

We hope this remind investors must remain vigilant about the risks in every security you purchase, from bonds, stocks, to funds.

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