Credit Suisse
Alexander Gloy
Macro-Economics | Monetary Theory l CBDC l Portfolio Management | Precious Metals l Crypto-Currencies
Credit Suisse published its 452-page annual report after a brief delay. Some quick thoughts.
A bank run has already happened at Credit Suisse. During 2022, customer deposits declined from CHF 392 billion to 233 billion (-40%):
In terms of capital, the situation looks manageable. However, the devil usually hides off-balance sheet. Banks report derivative positions as "net", meaning after collapsing offsetting positions into a (much smaller) net number. This might hold true as long as no counterparty defaults on its obligations (or tables some legal challenges). When a counterparty fails, suddenly one "side" of the trade goes missing, and "gross" becomes "net" exposure. Counterparties usually do not default on winning (from their perspective) trades, so it's always a losing trade, and the bank ends up with a loss.
"Exchange-traded" positions are fine - if the counterparty defaults, it's the exchange's problem to deal with. Same with "OTC-cleared", meaning the product it not traded on an exchange, but there is a central clearing counterparty that intermediates between both parties.
OTC (over-the-counter) "non-cleared" is just a bilateral agreement between two parties. There is no central counterparty. If your counterparty defaults, good luck enforcing the contract. And in this category there is a lot of stuff:
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The big chunk in "Other products" (precious metals, commodities, energy products) could be linked to crude oil, as some big trading houses are located in Switzerland. A failure of one of those could be detrimental to CS.
The viability of those derivative contracts depends on the solvency of the counterparty. The only thing we know are aggregate rating buckets:
Many banks now boast they "hedged" their risks from rising interest rates. But someone is sitting on the other side of the trade. We haven't yet seen a blow-up from those interest rate derivative positions. If I had to make a bet on what could go wrong next I would go with those.
Disclaimer: This is not investment advice, just my personal opinion. I have no particular knowledge other than what can be gained from reading these publicly available statements.