Social media speculation that Switzerland’s No. 2 largest bank is on the brink of collapse helped push down Credit Suisse share prices almost 12 percent to a record low on Monday, drawing comparisons to the Lehman Brothers collapse that triggered panic during the global financial crisis.
A memo to bank employees from CEO Ulrich Körner on Friday sought to calm concerns about the troubled bank’s financial health before a restructuring plan is announced on Oct. 27. The memo had the opposite effect, fueling apprehension about the bank.
Credit Suisse shares recovered most of the day’s losses Tuesday, but the share price has declined 54 percent so far this year.
One of Europe’s largest banks, Credit Suisse has had to raise capital, stop share buybacks, cut dividends and revamp management after losing more than $5 billion from the collapse of investment firm Archegos in March 2021. It also had to suspend client funds linked to failed financier Greensill.
In July, the bank replaced its CEO and brought in restructuring expert Ulrich Koerner to scale back investment banking and cut more than $1 billion in costs.
Funding an effective restructuring could be expensive and challenging, but some analysts say there’s no indication the bank faces an existential threat.
“We would be wary of drawing parallels with banks in 2008,” analysts at Citigroup said in a note to clients on Monday.
The freakout over the bank’s future appears to say more about the anxious mood hanging over markets than the bank’s financial position, analyst Julia Horowitz wrote for CNN. “Analysts say that Credit Suisse has more than enough capital on hand to meet regulatory requirements and the liquidity necessary to deal with a potential shock. Years of scandals and fines have hurt the bank’s business, but it’s not about to fail.”
JPMorgan Chase analyst Kian Abouhossein wrote on Monday, “From our perspective, looking at company financials at the end of [the second quarter], we see [Credit Suisse’s] capital and liquidity position as healthy.”
Mohamed El-Erian, an adviser to Allianz, discussed Credit Suisse in relation to the 2008 collapse of Lehman Brothers. “I do not think this is a ‘Lehman moment,’” said El-Erian, who is president of Queens’ College, the University of Cambridge, and chief economic advisor at Allianz, the corporate parent of PIMCO.
Credit Suisse is counting on an inflation “breakdown” over the next four to six months that will force the U.S. Federal Reserve to stop raising rates. It also expects an inflation “collapse” to happen in the next 12 to 18 months.
“The market believes that come the first quarter, if we continue to go on this glide path where things renormalize, that they’re going to either pause or signal that they might pause,” said Jonathan Golub, managing director of Credit Suisse’s New York office, in a Sept. 10 CNBC “Fast Money” interview. “If they do that the stock market wants to move ahead of it. The stock market is really going to take off.”
Still, Credit Suisse executives spent the weekend reassuring big clients and investors about the bank’s liquidity and capital, the Financial Times reported on Sunday.
The bank may be forced to sell assets and investors want to know how much capital it will need to raise to fund the cost of restructuring, analysts at Jefferies wrote in a note to clients on Monday.
Credit Suisse had total assets of 727 billion Swiss francs ($735.68 billion) at the end of the second quarter. Deutsche Bank analysts estimated in August a capital shortfall of at least 4 billion francs, Reuters reported.
Photo: Zurich’s Paradeplatz, home to Credit Suisse, has some of the most expensive real estate in Switzerland. (SISHION) https://commons.wikimedia.org/wiki/User:SISHION