During the National Day holiday, a major rumor ignited the global financial market. David Taylor, a business reporter from Australian Broadcasting Corporation (ABC), rumored on social media that a large investment bank is on the verge of bankruptcy. The market speculation pointed directly at Credit Suisse .
After this news broke, Credit Suisse's stock price hit a new historical low (this year alone, Credit Suisse evaporated about 60% of its market value). At the same time, the spread of its credit default swaps (CDS, an insurance method for to hedge the risk of default) rose to the highest level this year.
For a time, questions were endless about whether Credit Suisse would go bankrupt, whether it would become the next Lehman Brothers , and whether it would repeat the 2008 financial crisis.
Rong Ping believes that under the background of Federal continuous and significant rate hikes in , the global capital cost has risen, which puts great pressure on international financial institutions. However, although the current risk of a global financial crisis is very high, I always believe that the Credit Suisse bankruptcy crisis is not enough to become the "Lehman moment" that triggered the global financial crisis .
This time is different from the subprime mortgage crisis in 2008. It is because the Federal Reserve's continuous interest rate hikes and the political crisis of the Russian-Ukrainian war, rather than the major problems in the US financial market or European sovereign debt. Moreover, Credit Suisse is a Swiss investment bank in neutral country . It is neither at the center of the US financial market nor at the center of the European financial market. Therefore, even if Credit Suisse broke out in bankruptcy, the impact on the global financial market will be controllable.
Credit Suisse Group was founded in 1856. It is the fifth largest consortium in the world and the second largest bank in Switzerland. It is a veritable century-old investment bank. Some analysts believe that such a globally influential investment bank is rumored to be bankrupt. If it is true, its impact on the global financial market will be greater than that of Lehman Brothers in 2008.
Therefore, the Credit Suisse crisis is also called another "Lehman moment" in the global financial market.
On September 15, 2008, Lehman Brothers ("Lehman"), one of the top four investment banks in the United States, announced their bankruptcy due to a significant loss in the subprime mortgage crisis, which triggered turmoil in the global financial market and triggered a world financial crisis. Lehman's bankruptcy has become a key node for the full outbreak of the subprime mortgage crisis, so it is called "Lehman Moment" .
In Rong Ping's view, although Credit Suisse is a century-old investment bank, like Lehman, Credit Suisse's bankruptcy crisis is difficult to compare with the "Lehman Moment". The reason is very simple. Lehman is an American company that holds a large number of subprime bonds , which is a key link in the subprime mortgage crisis. Although Credit Suisse has indeed encountered some problems in recent years, it has been troubled by a series of scandals, such as Archegos liquidation, Greensill bankruptcy, leaks, etc. , its crisis does not have the same conductivity as Lehman. Therefore, even if Credit Suisse goes bankrupt, its impact on the global financial market is still partial, short-term .
In fact, the global financial market was not affected by the rumors of Credit Suisse. Instead, after the negative news broke out, the global stock market rose across the board, and it has risen sharply for two consecutive days this week. For example, US stock rose by more than 5% in two days, and Hong Kong stock Hang Seng Index also rose by more than 1,000 points. Then on the evening of October 3, ABC business reporter David Taylor deleted the tweet that caused heated discussion. Affected by this news, Credit Suisse's US and European stocks also rose sharply on the 4th.
Although the Credit Suisse bankruptcy crisis and the subprime mortgage crisis in 2008 were both caused by the Federal Reserve's continuous interest rate hikes, the risk coefficient of the financial market, or the number and scale of subprime bonds, cannot be the same as the peak of 2008.During the 2008 financial tsunami, the Federal Reserve's interest rate hike ignited the fuse of subprime debt defaults. American financial institutions held a large number of subprime debt products such as CDS. In the end, due to liquidity contraction and even drying up, a comprehensive crisis in the financial market was triggered. Lehman is the key one of this domino, which triggered the outbreak and accelerated transmission of the subprime mortgage crisis.
Although the price of the five-year credit default swap interest rate spread (CDS) after the rumors of Credit Suisse broke out in this bankruptcy crisis was as high as 293 basis points, and the default risk was high, setting a historical high, believes that Credit Suisse is facing a "Lehman moment" and will trigger systemic risks in banks.
The current situation is very different from that in 2007, and there are fundamental differences in the balance sheet in terms of capital and liquidity. Data shows that as of the end of the second quarter, Credit Suisse's financial situation was healthy, with the adequacy ratio of common stock Tier 1 capital (an indicator for measuring its financial strength) being 13.5%, and the liquidity coverage ratio of was 191%.
Lehman's asset size on the eve of bankruptcy is about US$700 billion, almost entirely investment banking business , and no commercial banking business . Therefore, the entire liabilities come from the wholesale financing market and are not protected by deposits. Once bankruptcy goes out, the impact will be particularly large.
. Although Credit Suisse's asset size is as high as US$700 billion, more than 240 billion is commercial banking business, with relatively strong profitability and protected by deposits. The investment bank's asset size is only about 330 billion Swiss francs, which is approximately US$330 billion. The impact of 330 billion in 2022 is obviously far lower than the 700 billion in 2008. In terms of
assets, Credit Suisse Group's capital adequacy ratio and tier 1 capital ratio (CET 1) are both within the scope specified by Basel Agreement III, and . This agreement is the insurance lock born after the 2008 global financial crisis, requiring financial institutions to hold sufficient funds to deal with adversity.
In addition, the impact of Lehman bankruptcy is huge because the 2008 financial crisis was essentially a real estate crisis superimposed on the default of systemically important financial intermediaries. There is no real estate crisis behind this Credit Suisse crisis, and there is even (temporarily) no sovereign government debt crisis during the European debt crisis .
As mentioned above, Credit Suisse is not in the center of global financial risks. Therefore, even if a bankruptcy crisis occurs, it is only partial and short-term.
Some financial analysts believe that the more similar comparison of Credit Suisse's dilemma is Deutsche Bank in 2016 and 2017, and Morgan Stanley in 2011. From 2016 to 2017, due to the European debt crisis, a loss of 1.4 billion euros and a claim of US$14 billion, Deutsche Bank's credit default swap surged, which also triggered "Lehman Moment" remarks. Due to market rumors that "there is a lot of exposure to European debt" in 2011, Morgan Stanley's credit spread soared.
In fact, the impact of 's current European political crisis is far greater than that of finance and economic crisis . This is also the reason why this crisis is essentially different from the 2008 financial tsunami, and its impact on the world pattern is also more far-reaching.
The source of risk of this global crisis is at the political level. The multi-party game around the Russian-Ukrainian war and its impact on finance and economy can even be compared with World War II period. Therefore, financial crisis has been reduced to the derivative and chain reaction of political crisis .
For Europeans, compared to whether Credit Suisse's bankruptcy will trigger a global financial crisis, people are more concerned about how to survive this winter smoothly in the absence of substantial difficulties in Russia's energy supply (such as the bombing of the Nord Stream natural gas pipeline). This is the personal survival issue. Therefore, compared with the financial crisis in 2008, the political crisis facing Europe this time is a higher level and greater intensity problem.
For example, the extreme right tendency in the political arena of many European countries is an explicit reflection of the political crisis, which is a higher level and more worthy of attention than the financial crisis or even the political crisis.
For example, the center-right party alliance led by the brothers in the Italian general election won the election; the far-right party Swedish Democratic Party rose to the second largest party in the Swedish parliamentary election; in the French presidential election and parliamentary election, the right-wing party "National Alliance" led by Le Pen failed to take over the Elysee Palace, but achieved the "best record in history" to become the third largest party; in the UK's Conservative Party party first election in September, the victory and coming to power of the current Prime Minister Tras also represents that the more radical and right-leaning political factions within the Conservative Party behind him have gained increasing influence.
European political right-leaning and extreme and populist parties are rising. is a social and political crisis derived from Europe under the stimulation of the Russian-Ukrainian war, which greatly affects the stability of European politics. EU and the political arenas of various countries generally increase. Against this background, the downward pressure on the European economy continues to emerge as winter approaches and the continuous release of the energy crisis derivative effects. The current downward pressure on high inflation and growth is likely to turn into a "stagflation" dilemma and exacerbate recession pressure.
Therefore, the current Credit Suisse bankruptcy crisis is not comparable to the local and even global political and economic crises that have occurred in Europe. This is the fundamental reason why Rong Ping is not optimistic about the impact of Credit Suisse's bankruptcy crisis.
The United States' continuous interest rate hikes triggered the bankruptcy crisis, which is just a superficial phenomenon. The deeper level is that the high intensity of military and political crises such as the Russian-Ukrainian war has given the Federal Reserve a higher level of interest rate hikes. Due to the high uncertainty and risks of geopoliticality, European funds have fled to the United States in large quantities. This level of funds is not simply driven by the profit-seeking effect of interest rate spreads in Europe and the United States, but the authenticity of fund security .
In the middle of the year, on June 8, Credit Suisse Group stated that may suffer losses in the second quarter due to the tightening of the situation in Russia and Ukraine and the tightening of monetary policies. Credit Suisse said that the geopolitical situation, the sharp tightening of monetary policies in response to soaring inflation, and the lifting of stimulus measures during the epidemic have led to "continuous intensification of market volatility, weak customer flows and continued deleveraging of customers, especially in the Asia-Pacific region."
Former Credit Suisse CEO Thomas Gottstein has also recently stated that in terms of investment banks, Credit Suisse's overall performance has also been severely affected by a series of external factors, including geopolitical, macroeconomic and market factors .
This actually directly verifies that Credit Suisse's bankruptcy crisis is highly correlated with the situation in Russia and Ukraine and the Fed's interest rate hike effect.
It is worth mentioning that is directly related to geopolitics. Switzerland abandoned its neutral status in the face of the Russian-Ukraine war, which also caused international major banks like Credit Suisse to lose many of its major customers . Everyone knows that Switzerland is a neutral country, and the richest people around the world like to keep their money there, because neutral countries are always neutral. No matter how chaos in the outside world is, Switzerland will not participate. Therefore, everyone believes that funds are the safest here, but Switzerland, a "neutral country", took off the mask of Switzerland, after the outbreak of the Russian-Ukrainian war.
After European and American countries announced sanctions on Russia, Switzerland also gave up its neutral position. Credit Suisse Group even announced that it would freeze the assets of Russian customers in Credit Suisse, totaling up to 10 billion Swiss francs, which is about 71 billion to convert it into RMB. This shows that neutral countries are no longer safe. As a result, a large amount of funds were withdrawn from Credit Suisse Group's account, and Switzerland pulled away its hypocritical "neutral" identity, but triggered a crisis of trust among customers.
Switzerland looked back and saw that the situation was not good, so it quickly changed its words and continued to remain neutral, but it was too late.Although this incident did not have the famous Archegos liquidation incident that caused Credit Suisse to suffer huge losses, its long-term impact on Credit Suisse is actually more profound.
Rather than saying that the Credit Suisse bankruptcy crisis is affected by economic cycle fluctuations and improper risk management, it is actually reflected in the chaos in Europe, and the risks caused by the continued interest rate hikes of the Federal Reserve and the combined overlap of the political crisis of the Federal Reserve and the improper position in Switzerland are reflected in .
. We don’t know whether Credit Suisse Group, which is currently in crisis, can wait for an white knight to rescue (large capital), but it is certain that, as the main battlefield and outbreak of the two world wars, this cold winter in Europe has just begun!
