Credit Suisse setbacks raise fears of a new Lehman Brothers

Credit Suisse setbacks raise fears of a new Lehman Brothers

(BFM Bourse) – Concerns about Credit Suisse’s situation have revived the scenario of a Lehman Brothers, which caused the economic crisis of 2008. For many observers of the world of finance, these fears are unfounded. In fact, European banks are much more heavily armed than they were in 2008, buoyed by tighter capital regulations.

The stumbles of Credit Suisse, shaken by a series of scandals and whose stock market value has divided by three in a year and a half, revives the specter of the first great victim of the financial crisis of 2008-2009, the US bank Lehman. brothers

For nearly three weeks, its share price has been sinking to low after low as rumors swirl of an approaching balance sheet on its strategy. Considered a specialist in restructuring, its new CEO, Ulrich Körner, was given the heavy task at the beginning of August of carrying out a strategic review to turn the bank around, on which he will take stock on October 27.

But last week, credit default swaps soared. These derivatives are used by investors to protect themselves from the risks of default on a debt, their rise makes investors require more guarantees for the obligations linked to Credit Suisse.

A price at an all-time low

On Monday, the number two share in the Swiss banking sector fell by almost 11.5% on early stock markets, reaching a new record low of CHF3,518 after a new round of rumors over the weekend. The stock ultimately closed down just under 1% at CHF 3.94.

On social networks, discussions around a “Lehman Brothers moment”, referring to the US bank that had failed in 2008 and marked the outbreak of the great financial crisis, spread like wildfire, although many observers in the world of finance rules this fact out. risk.

For the European Systemic Risk Board (ESRB), attached to the ECB, the second Swiss bank and the European banking system as a whole are better equipped than at the moment to face a crisis.

Why is the Credit Suisse situation worrying?

By letting Lehman Brothers go under in 2008, the Bush administration hoped to set an example, without having measured all the consequences. The bankruptcy of the establishment thus led the market players to think that other establishments could follow, accentuating the difficulties and requiring the intervention of many States. The Belgian-Dutch holding company Fortis was thus dismantled, passing the Belgian subsidiary to the control of the French BNP Paribas.

Especially many other institutions, considered “too big to fail” (too big to fail) had to be rescued urgently, at the risk of a total collapse of the financial system. The American insurer IAG or the Franco-Belgian bank Dexia, which ultimately did not survive the Greek debt crisis, were some of the rescued establishments.

However, these bailouts were very costly for public finances and triggered the debt crisis that followed and led to an austerity cure, particularly in Europe.

Tests to measure the soundness of banks

Under pressure from the European regulator, banks have made significant efforts over the last decade to be more robust in the event of a crisis. For example, they must demonstrate a higher minimum level of capital to absorb any losses. This hard capital ratio, also called CET1, is the work of the Basel Committee in Switzerland.

Credit Suisse recorded in its mid-year results, published at the end of July, a solvency ratio of 13.5%. For comparison, it is 12.2% for BNP Paribas, 14.93% for Italy’s Unicredit and 13% for Deutsche Bank.

This capital ratio, which makes it possible to face unexpected losses, was “strongly reinforced” after the 2008 crisis, assures the head of the Parisian banking team of Moody’s rating agency Alain Laurin, and the way of calculating it has been modified in a more restrictive sense.

The European Banking Authority is also subjecting 50 large banks on the continent to stress tests. The results of the last exercise, published at the end of July 2021, showed that the establishments were able to withstand a serious economic crisis without suffering too much damage.

A new domino effect to fear?

Experts contacted by AFP want to be reassuring for now. First, Credit Suisse “remains a strong financial institution,” says Guillaume Larmaraud, partner in charge of financial services at Colombus Consulting.

So, even in the event of a crisis, “the financial strength of the banks is extremely strong, the lessons of 2008 have been well learned,” Vanessa Holtz, director for France at Bank of America, told AFP. In the event of bankruptcy of a banking actor, the European continent “already has a framework” to get it out of the pothole, whatever its size, the president of the Spanish bank Santander Ana Botín, also president of the European Bank banking lobby, added in February.

And if, as a last resort, governments were tempted to pull out their wallets to save an establishment, unlike before 2008, a framework initially envisages making shareholders or major creditors pay. The banks also contribute to a European fund that must avoid presenting too high a bill to taxpayers.

(with AFP)

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