If it happens, it is going to happen quickly. When Lehman Brothers fell over in 2008 the bank surprised half the analysts on the street and caught many regulators napping as well. Credit Suisse [SW:CSGN] seems to have called its bankers in over the weekend as it faced a sudden widening of the spreads of its credit default swaps.
Sources within the Swiss bank were in defensive mood on Monday, arguing that the bank was not going to be tapping investors for a fresh injection of capital. Investors were already dumping stock when CEO Ulrich Koerner sent a memo to bank employees reassuring them over the bank’s capital position and liquidity.
Like other banks, Credit Suisse is dealing with a rapid rise in the credit default swaps, which were up over 50 basis points in the last couple of weeks. Analysts had been expecting trouble of some kind as European banks started to get squeezed under the current period of market stress. The bank’s board had been scheduled to present its strategy for a revamp of the firm along with Q3 results at the end of this month. They may need to do more, and sooner.
Koerner was appointed to the top role having previously run the Credit Suisse asset management business. The bank’s employees had been braced for thousands of redundancies this autumn. The board is thought to be planning to carve the bank up into three parts, including a bad bank which will take a lot of the non-performing or high-risk assets. This is a fairly standard strategy in investment banking: I had a front row seat for musical chairs of this sort while working at another Swiss investment bank in 2003 following a credit downgrade.
Most of the recent fears have arisen after a report released from ABC Australia, which said, “A major international investment bank is on the brink”.
Many have speculated that they are indeed referring to Credit Suisse. Credit Suisse’s credit default swaps costs, which is the cost of insurance against a default, have reached the highest level since 2008, the year of the Global Financial Crisis. This means that investors are truly concerned about the potential for Credit Suisse, the largest bank in Switzerland, to default.
Credit Suisse seems to have ended up holding the baby in a number of major financial scandals. It took a huge hit with the collapse of the US-based hedge fund Archegos Capital Management.
“The reason this is so significant is because Credit Suisse are considered to be G-SIB (Global Systemically Important Bank) partly due to their total assets under management,” said Marcus Sotiriou, an analyst with GlobalBlock. “The uncertainty around Credit Suisse is an advert for the need for decentralised financial systems and cryptocurrency. This could be why decentralised exchanges are taking up a larger market share than centralised exchanges.”
“It is almost as if they did not get the memo after 2008,” said one market commentator, who pointed to Credit Suisse’s ongoing risk taking. Shares in the bank have dropped from $14.90 in February 2021 to trading just above $3.90 during US market hours on Monday.
Credit Suisse has traditionally been regarded as one of the most prestigious banking institutions in Switzerland. Swiss regulatory authorities will already be paying close attention to the finances at Credit Suisse.