Recently, Credit Suisse AG (hereinafter referred to as " Credit Suisse ") suddenly became the focus of the global market.
The second largest bank in Switzerland began to fight for survival, and its stock price hit a new low on Monday, and speculation about future bankruptcy intensified. The market is even worried that Credit Suisse may repeat the bankruptcy of the US Lehman Brothers Bank in September 2008, which was the fuse of the worst financial and economic crisis since the Great Depression. Against the backdrop of interest rate hikes from central banks in various countries, the global economy is facing a test, and negative rumors have once again hit market confidence, and European stocks fluctuated and fell in the early trading session. What happened to
incident originated last Saturday, and news came out on social media that a large investment bank was on the verge of bankruptcy. The market turned its target directly to Credit Suisse, which had previously submitted a memorandum. The memorandum reads: "From now to the end of October, there will be more noise in the market and media. I hope everyone will remain disciplined and keep in touch with customers and colleagues. There are inaccurate statements in many outside news. That is to say, don't confuse our daily stock price performance with the strong capital base and liquidity conditions of the bank."
Due to various news and performance losses, 's share price has fallen by nearly 60% this year and has hit a new historical low, with a market value of nearly US$12 billion, and the price-to-book ratio has dropped to 0.22.
The aforementioned news then fermented quickly because the statement about stock price and capital was exactly the same as what the former company CFO of Lehman Brothers said in September 2008. Credit Suisse's credit default swap (CDS) climbed to nearly 250 basis points last Friday, compared with just 57 basis points in the early year. Credit Suisse quickly became a hot search, and panic on social media such as Reddit has heated up, and remarks such as "Credit Switzerland may go bankrupt, the market is worried that Credit Suisse will not be able to repay its debts, systemic risks are coming, and the history of 2008 is reappearing" spread rapidly.
Credit Suisse executives reportedly spoke to major clients, counterparties and investors over their liquidity and capital status last weekend to appease their concerns about the bank's financial health. An executive involved in the negotiations revealed that the bank's team received "support information" from top investors after active communication over the weekend.
reported that Credit Suisse executives denied reports that banks had formally approached its investors about the possibility of raising more funds, and insisted that Credit Suisse "is trying to avoid such moves because its stock price is at an all-time low and borrowing costs are higher due to rating downgrades." The situation is not optimistic. Credit Suisse is a global integrated financial institution known worldwide for its investment banking and wealth management businesses. Now the troubles of its investment banking business have put the bank in an unprecedented dilemma.
In 2021 only, two transactions involved in investment banks resulted in huge losses of up to billions of dollars. First, the bankruptcy of supply chain finance company Greensill in March that year led to Credit Suisse's final closure of its $10 billion supply chain finance fund and rectifying its asset management department. Credit Suisse previously stated that as of the end of 2021, it had submitted five insurance claims to Greensill, corresponding to asset management risk exposure of approximately US$1.2 billion.
is followed by the "blank door" of Archegos Capital Management, the former Tiger Asia fund manager Bill Hwang's high-leverage bet on multiple stocks, including Viacom CBS, eventually collapsed, shocking Wall Street and triggering an investigation by regulators. The bank's senior executives even learned about Credit Suisse's exposure to the fund a few days before Archegos was forced to close, which eventually caused losses of more than $5 billion.
In June this year, Credit Suisse issued a performance warning, saying that due to the conflict between Russia and Ukraine and the tightening monetary policy, the bank may suffer losses in the second quarter. Since then, it has been rumored that the State Street Bank is considering issuing an acquisition offer to Credit Suisse at 9 Swiss francs per share, with a transaction value of 23 billion francs (approximately US$23.6 billion), but it was left unresolved.
Some analysts believe that Credit Suisse is similar to the situation of Deutsche Bank in the past few years, and needs to raise funds, but there is no better channel or partner. Credit Suisse CEO Kornar said the bank has nearly $100 billion of capital buffer and expects its highest-quality common equity Tier 1 capital ratio (CET1) to remain at 13%-14% for the rest of the year. However, according to the predictions of RBC Bank capital market RBC Market, the reality may be much worse, which is why Credit Suisse CDS was sold.
transformation has become a choice for self-rescue. Some media said that Credit Suisse has initially formulated a plan to split its investment banking business and become a "capital light" investment bank focusing on wealth management and banking business.
In the overview of the strategic review plan announced in July, Credit Suisse proposed to sell profitable departments such as securitization product business, hoping to avoid damage to financing capabilities. The securitization product business packages debts such as mortgages and then sells them as securities to reduce capital liabilities, but also makes it lose one of the most profitable businesses. According to the plan, Credit Suisse will update the progress of the comprehensive strategic review when it announces its third-quarter results on October 27. Credit Suisse has not negotiated with investors to consider raising funds under various circumstances and may "basically" exit from the U.S. market, according to people familiar with the matter.
KBW analysts estimate that Credit Suisse may need to raise CHF 4 billion in capital even after selling some assets to fund any restructuring, growth options and any unknown situations. Credit Suisse's market value fell to about CHF 10 billion, which exceeded 30 billion in March 2021, meaning any share sale will create a high dilution for long-term holders.
Market sentiment continues to fluctuate
European stock market opened lower on Monday, with Credit Suisse, which was trapped in a vortex, plunging at the beginning of the trading session, reaching nearly 7%, setting a record low.
In order to cope with inflationary pressure, global central banks are facing severe tests under the wave of interest rate hikes in various countries. A study released by the World Bank last month showed that the world economy is at risk of falling into recession and could cause financial crisis to emerging markets and developing economies, causing lasting damage.
Recent market fluctuations have reflected the escalating concerns among investors. JPMorgan Chaudhry, European stock quantitative strategist, said: "In the past, when the economic cycle slowed down and the Federal Reserve Feder continued to raise interest rates, landmark events such as Enron, Bear Stearns, Lehman (Lehman). The possibility of an "accident" now is very high, higher than ever in ."
However, the market is not just pessimistic. Citigroup said in a report on "a large European bank" that may have a "contagious effect" on Bank of the United States , "It is difficult for us to see something systematic." "We understand the nature of the concerns, but the current situation is different from 2007 because there are fundamental differences in balance sheets in terms of capital and liquidity," the report said, referring to the financial crisis that broke out in 2007. "John Vail, chief global strategist at Nikko Asset Management, said Credit Suisse's latest news indicates that the future will be a "time of instability", but this may lead to a change in the direction of the Federal Reserve. "There is a silver lining that as inflation falls and financial conditions deteriorate sharply, central banks in various countries may start to relax for some time. I don't think this is the end of the world," said Weir.
