Credit Suisse’s concern shows how frightened the markets are at the moment


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CNN Business

Social media speculation that Credit Suisse is on the verge of collapse has sent shares in the Swiss bank on a road trip In recent days, as investors trade frenzy and buy protection in case of default.

But the pressure on the global lender’s fortunes seems to be saying more about anxious mood Hanging on the markets from the bank’s financial position.

Analysts say that Credit Suisse

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It has sufficient capital on hand to meet the regulatory requirements and liquidity needed to handle any potential shock. Years of scandals and fines have hurt the bank’s business, but it’s not about to fail.

“From our point of view, looking at the company’s financial statements at the end [the second quarter]we see [Credit Suisse’s] Kian Abu Hussein, an analyst at JPMorgan Chase, wrote on Monday, “Put capital and liquidity in good shape.”

This does not mean that there are no risks. Financial Times mentioned That senior executives at Credit Suisse spent the weekend calling customers and large counterparties, assuring them that the bank is on a solid footing. If customers start withdrawing their money, it can create a dangerous feedback loop.

Timing is tough, too. Credit Suisse needs to raise new money from investors To support a turnaround plan to be announced later this month, which will include shrinking the troubled investment bank.

However, a number of experts maintain that the scene around Credit Suisse seems exaggerated, at least based on what we know now.

“I don’t think this is a ‘Lehman’ moment,” said Mohamed El-Erian, Allianz advisor, He said on CNBC On Monday, referring to the 2008 collapse of Lehman Brothers that sparked a wave of market panic during the global financial crisis.

Credit Suisse, the second largest bank in Switzerland, has suffered a crisis series of slips And the Compliance failed In recent years it has cost him billions and led to a complete overhaul of top management.

However, it has come under renewed scrutiny after a memo he sent to employees from Chief Executive Ulrich Koerner on Friday, which sought to allay any concerns about the bank’s financial health before unveiling the restructuring plan on October 27. The message backfired, stoking fears about the bank rather than denting them.

Shares of Credit Suisse plunged about 12% at some point on Monday, hitting a record low as investors dumped their holdings. Sentiment appears to be improving, as stocks closed down just 0.9% on Monday and rose on Tuesday. However, merchants are racing to buy insurance in the event the bank defaults on its debt, which has led to high rates of five-year credit default swaps.

Credit Suisse’s business is under severe pressure. It is preparing to downsize its investment bank and boost its wealth management arm — a costly endeavor that could cost 6 billion Swiss francs ($6.1 billion), according to a recent analysis from Keefe and Bruyette & Woods. Asset sales are likely to cover only CHF 2 billion.

The bank’s market capitalization has fallen to 10.5 billion Swiss francs, after a 54% drop in the share price so far this year.

Korner’s note on Friday acknowledged it was a “critical moment for the entire organization.” However, analysts stress that there is no indication that the bank faces a greater existential threat, even if providing financing to implement an effective restructuring may prove difficult.

“We would be wary of drawing parallels with banks in 2008,” Citigroup analysts said in a note to clients on Monday.

At the end of the second quarter, the key measure of Credit Suisse’s capital position — related to its ability to absorb losses — was 13.5%, higher than its peers, according to Citi. The bank also has “very healthy” levels of liquidity that can be accessed quickly in times of crisis.

The concerns were about Credit Suisse amplified by a A sudden crisis in the UK bond markets late last month. Investors were surprised after Prime Minister Liz Truss’s new government unveiled a package of unfunded tax cuts. This sparked a frenzied sell-off of government debt, putting pension funds in the corner and Force the Bank of England to intervene to ensure financial stability.

This incident exacerbated fears that cracks in the financial system could unfold as an aggressive campaign of interest rate hikes by central banks aimed at fighting the fan market for inflation. volatility.

“The market reaction is the interesting thing here,” El-Erian said on Monday of the Credit Suisse drama.

Jose Luis Pedro, professor of finance at Imperial College Business School, said the bank could be exposed to risks that neither the market nor even insiders know.

The collapse of the US hedge fund Archegos Capital last year, for example, cost Credit Suisse $5.5 billion. that independent external investigation She later found a “failure to manage risk effectively”.

Pedro added that if Credit Suisse encounters deeper problems, many of the problems will be unique to the company, which means it will not trigger a chain reaction across the banking sector.

Big banks also face more significant scrutiny after the crash in 2008, which makes them less vulnerable.

“Banks have much higher levels of capital and liquidity than in the past thanks to post-2008 banking regulations,” Pedro said.

Other lenders are not subject to these requirements, though. In recent days, experts have said they are keeping an eye on so-called “shadow banks”, which make loans but don’t have to follow the same strict regulations. They believe that these companies can be a source of disruption if the markets are exposed to new shocks.

“If you are concerned about systemic risk, look at the non-banks, not the banks,” El-Erian said.

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