Credit Suisse Shares Tank As Capital Concerns Spark Reminders Of Lehman Brothers Failure: Here’s What We Know


Topline

Shares of Credit Suisse plunged to an all-time low Monday as investors traded on concerns about the Swiss banking giant’s financial health and management’s ability to restructure the institution in a manner that would satisfy skeptics who believe the bank’s capital position is at great risk–which is sparking whispers of a so-called ‘Lehman Brothers moment.’

Key Facts

Credit Suisse shares fell to an all-time low of $3.70 Monday in New York and fell 5% in Zurich as investor confidence in the Swiss banking giant continues to fall as its capital position is being questioned after months of falling profits.

The bank is working to restore confidence with CEO Ulrich Körner writing in a Friday note to employees (which was viewed by Forbes and shared earlier with other outlets) not confuse the company’s “day-to-day stock price performance with the strong capital base and liquidity position of the bank”, while the Financial Times reported Monday the bank’s top executives called clients over the weekend to calm doubts about the bank’s financial position.

Making matter worse more difficult are a series of unverified reports linked to Credit Suisse sent social media into a frenzy over the weekend, with an unnamed large investor in the bank telling Fox Business reporter Charles Gasparino Saturday the bank is a “disaster” and ABC Australia reporter David Taylor tweeting a source told him a major investment bank was on the brink.

Taylor deleted the tweet Monday, but not before it went viral and was linked to Credit Suisse and Germany’s Deutsche Bank, while several other tweets playing up comparisons between Lehman and the European banks racked up tens of thousands of likes on Twitter.

Perhaps more crucially, Credit Suisse’s credit default swaps, an indicator of investor confidence in the bank’s financial stability, surged to an all-time high Monday.

Credit Suisse says it has close to a $100 billion capital buffer, according to the New York Times, but as the spread on its credit default swaps surge it may become more difficult for the Zurich-based institution to raise additional capital.

Big Number

$1.47 trillion. That’s how much assets Credit Suisse managed as of the end of the second quarter of 2022, compared to Lehman Brothers’ over $600 billion in assets when it filed for bankruptcy September 15, 2008, plunging the stock market.

Key Background

Credit Suisse is the 45th-largest bank in the world, second-largest Swiss-based bank and 17th-largest in Europe, according to S&P Global Market Intelligence. The bank installed Körner as its top executive in July after the bank missed on earnings, and Credit Suisse has been marred in recent by billions of dollars in losses from financial penalties and the collapse of asset manager Archegos and financial services firm Greensill. Credit Suisse has $100 billion available to cover any losses, according to talking points sent to executives viewed by the New York Times, and the memo said, “Speculating that we have a liquidity issue simply would be completely false.”

Surprising Fact

The Dow Jones Industrial Average closed out its worst September performance since 2002 on Friday, falling 9%, while the S&P 500 and tech-heavy Nasdaq had their worst Septembers since 2008. American markets inched upward early Monday, with each index rising about 1%.

What To Watch For

If the price of credit default swaps for Deutsche Bank also surge. Though concerns are not as stark about Deutsche Bank as with Credit Suisse, shares of the German bank are down 42% year-to date. Deutsche Bank’s credit risk surged in 2016 over concerns about the bank’s liquidity.

Tangent

Insolvency concerns at several firms tanked the cryptocurrency markets earlier this year when exchanges Celsius and Voyager filed for bankruptcy. Bitcoin is down 60% year-to-date to about $19,000, a far cry from its nearly $69,000 high last November.

Further Reading

Credit Suisse is fending off concerns about its financial health, fanning fears of another Lehman Brothers moment that could roil the global financial system. Here’s what’s happening, and what it means. (Insider)

Credit Suisse reassures investors over its financial strength (Financial Times)



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