Will Credit Suisse repeat the fate of Lehman Brothers?

7 oct 2022

Information has appeared on the Internet that the Swiss bank Credit Suisse is highly unstable.

Recall that Credit Suisse is the second largest Swiss financial conglomerate after UBS. This bank covers a large volume of the banking market around the world and if Credit Suisse has problems, the entire world economy will feel it.

The bankruptcy of such a financial institution may also have a negative impact on the cryptocurrency market, since when banks liquidate unprofitable leverage positions, they primarily cut over risky assets, to which the crypt belongs.

A Twitter user under the nickname Alex Good analyzed in detail the future financial results and compared the current situation at Credit Suisse with the bankruptcy of Lehman Brothers:

twitter.com/goodalexander/status/1576724677225246720

Some conclusions:

1. CDS (credit default swaps) - a credit instrument that allows you to hedge the risk of bankruptcy, Credit Suisse bank has exceeded 250 points, which is higher than the maximum of 2009 (the previous financial crisis)

2. Bonds nevertheless show a yield of only 6.4%, which is not significant and does not indicate bankruptcy (yet).

3. CET1 capital adequacy is an indicator of comparing a bank's capital with its risk-weighted assets to determine its ability to withstand financial difficulties.
Credit Suisse has 13.5% (against 10% of Swiss claims, 8% of international claims), at the height of the crisis of 2008-2009 - this indicator was often 5% for banks.

4. The bank has several sources of influence on future financial results:
A) money management fees for rich clients
B) losses of an investment bank that lost substantially during the bankruptcy of Bill Hwang from Archegos
C) penalties for losses from point B
D) unprofitable fund "All Funds"

5. The fall in the price of Credit Suisse shares reflects the forecast of the financial result (-70% to profit) of the bank

6. The bank profits from the increase in rates in the markets, focused on large Chinese clients, after finishing work with the Russian market

7. Asian clients, despite falling markets, make 3 times more transactions than American clients.

8. Several transactions related to the issue of bonds can bring a significant loss to the bank, including a loss from investments in the European leverage index of loans, which generates up to 245M of loss.

9. Also on the horizon is the problem of losing 600M from holding the debt of Citrix.

10. The litigation concerns the corporate culture of Credit Suisse bank, an ex-employee managed to bring a loss of 1.27B to one of the clients and successfully hid it.

And here the question arises - is Credit Suisse and the entire market in danger of repeating the history of Lehman and have we lost sight of the new black swan?

An incident of this scale can bring a financial tsunami to the most risky markets of technology stocks and cryptocurrencies, and the current level of BTC 19K can become the level of 6K BTC in 2018 (it is worth recalling that at the beginning of 2018, bitcoin dropped to 6K, and when the whole Twitter thought that here it is super-large and from here only up - BTC abruptly went to the 3K area (just at the peak of the quantitative tightening program from the Fed).

Another news came out today:

Credit Suisse CS has stepped up efforts in recent days to sell or reduce stakes in key companies as part of a planned restructuring to remake the bank – WSJ.

By the way, the name of the chairman of the Board of directors of Credit Suisse - Axel P. Lehmann - is nothing but a smile of fate.

What do you think about the future of the global economy?

Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻