Credit Suisse collapses in the stock market, is there a fire in the lake?

Credit Suisse collapses in the stock market, is there a fire in the lake?

( — The Financial Times reported Sunday that leaders of the swiss credit he had spent the weekend reassuring investors about his financial health. This follows the move in bank credit default swaps that offer protection against corporate default, rising sharply on Friday to their highest level in at least 10 years. Credit Suisse fell a further 8% this morning to 3.62 Swiss francs. It is down 27% in one month and almost 60% since the beginning of the year.

Therefore, the Zurich banking group is in crisis. The well-informed FT claims that senior executives at the establishment would therefore have been in contact with major clients following the strong progression of CDS, suggesting heightened concern for the group’s financial health. Therefore, the aim was to quickly reassure clients about the bank’s liquidity situation and capital position. “The teams actively engaged with our clients and key counterparties over the weekend,” said an executive quoted by the Financial Times and involved in the discussions. “We also received calls from our main investors with messages of support.”

However, the executive quoted by the FT denied recent news reports that Credit Suisse had formally approached investors about a possible fundraise, insisting that the bank was trying to prevent such a move, with the share price already at historic lows and higher borrowing costs due to downgrades. by rating agencies.

Following the fall of the title last month, CEO Ulrich Körner had sent an internal message at group level on Friday to reassure the teams already about Credit Suisse’s financial situation, adds the FT. CDS, meanwhile, a measure of investor sentiment regarding risk, had risen more than 50 basis points over the previous two weeks, reaching 250 bps on Friday.

The Financial Times also cites a note on customer issues, sent to Credit Suisse executives on Sunday, following rumors circulating on social media about the health of the establishment. “Credit Suisse has a strong capital and liquidity position,” the bank said in the note, adding that “share price developments do not change this fact.”

An executive at a firm contacted by Credit Suisse, quoted by the FT, said for his part that his view was that the Swiss establishment was “the worst big bank in Europe”, but was not in immediate danger. “I don’t think it’s a crisis,” added the leader, who believes that the fall in prices reflects the profound difficulties of the banking system and the absence of an obvious solution.

Körner and the bank’s board, chaired by Axel Lehmann, are due to present a business reorganization plan on October 27 to address investor concerns, on the sidelines of the release of third-quarter results. Deutsche Bank analysts estimated that the restructuring would affect Credit Suisse’s capital position by 4 billion Swiss francs. An FT source, a senior bank executive involved in the presentation, hinted that CS would sell assets and divest to finance this “very strong pivot” to be achieved with a view to returning to stable activity.

JP Morgan, for its part, says that given the financial data of the bank at the end of the second quarter, capital and liquidity would be “healthy”. The bank had indicated its short-term intention to keep its CET1 capital ratio at 13-14%. The ratio at the end of the second quarter was within this range and the cash coverage ratio was above the requirements. At the end of the first half of the year, Credit Suisse also had 727 billion Swiss francs in assets, or about 750 billion euros.

Körner, who previously headed CS’s asset management arm, was appointed CEO over the summer to turn around investment banking operations and cut costs. The FT estimates that these actions should result in thousands of job cuts. Ultimately, the board’s latest plan would be to split the investment bank into three and recreate a ‘bad bank’ for high-risk assets and units earmarked for going out of scope.

Be that as it may, we understand that the bank will experience a particularly turbulent month of October, at least until the official presentation of its plans. Meanwhile, Körner would have advised his teams to “stay disciplined and closer than ever to clients and colleagues.”

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