Tale of the Credit Suisse - Crisis or Turmoil

The share price of Credit Suisse a 166 years old Investment Bank hit an all-time low on Monday. The share price has fallen close to 60 percent since the beginning of 2022, whereas the spreads on credit default swaps on its debt have spiked to a 14-year high.

Every finance and commerce student apart from Investors and traders must consider the facts prior to categorizing the case of Credit Suisse as a crisis or mere turmoil. The events and actions currently taking place in and around Credit Suisse are not only significant in the investment banking sphere but may have global economic implications. I hereby draft the 5 most obvious questions and answer them (based upon information gathered from global print and electronic media including opinions of Market Experts as well as statements from Official of Credit Suisse) to help the readers to learn about issues in detail and to have points (food for thought) to explore further as per their interest.?

Credit Suisse is a global investment bank and financial services firm based in?Zürich,?Switzerland founded in 1856 by?Alfred Escher. It has a headcount of approximately?51K (2022) with a revenue base of 2,270 crores CHF (2021). Major subsidiaries include Swiss Universal Bank and Select Portfolio Servicing.?

1. What led to the Credit Suisse crisis?

Credit Suisse has been losing its market value since the 2008 global financial crisis (from around 71 to 4 CHF per share), hence the share price has witnessed almost a secular decline. The reason for this decline is straightforward, Credit Suisse has ended up losing a lot of investor money in several risky bets that it made. This not only hurt its profitability, but also eroded investor confidence, and resultantly made raising fresh capital costlier.

Rising interest rates (amid inflation or better to say, to tap inflation) across the globe made it further difficult for all the banks and FI to manage the financing side of their balance sheet and Credit Suisse is not an exception to this.

2. What are the big dents to Credit Suisse in recent years?

Greensill had filed for bankruptcy somewhere in March 2021. In the same month a hedge fund run by Bill Hwang, Archegos Capital Management, collapsed and caused another $5.5 billion loss to Credit Suisse.

Further, investor confidence was shaken badly when high-profile managerial malpractices came to light followed by exits. For example, in 2020, then CEO Tidjane Thiam had to quit after it became clear that he had been spying on Credit Suisse’s wealth management executive Iqbal Khan.

3. What triggers the concerns recently?

The most recent trigger seems to be a letter written by Chief Executive Ulrich Koerner to Credit Suisse’s employees on September 30.?In the memo sent on Friday, Mr. K?rner cautioned against confusing the “day-to-day stock price” with the bank’s “strong capital base and liquidity position”, and insisted the upcoming restructuring would ensure the lender’s “long-term, sustainable future”.

Despite the letter from the CEO, on Monday the 3rd Oct, Credit Suisse shares plunged as much as 11.5 percent, hitting a record low of $3.61.

4. What Next - What is advice?for an investor?

The?scenario is troubling and it could become a major crisis. History teaches us that it is difficult to predict the market.

The scenario could snowball into a repeat of the 2008 Lehman crisis, which triggered a global recession. Market analysts believe that even though no one can predict what might happen with the bank crisis going on in Europe, markets will continue to be under stress for some time.

Credit Suisse CEO is expected to present a strategic plan on October 27 to avoid filing for bankruptcy.

Investors should be prepared for more rounds of volatility, especially in the equity market sphere.

5. Will it impact Mutual fund and Investor in India if turn into a fall like Lehman Brothers?

Market analysts say that the rapidly increasing interest rates globally have impacted the banks and made the issues much bigger. They also say that the stress in the banking sector might further trigger interest rates and impact currencies across the globe. This will result in a lot of indirect impact on Indian equity markets and hence the returns from equity mutual funds as well.

What's your take on the current scenario of Credit?Suisse? Do share in the comment section.

Credit?Suisse, has a tier-one ratio is 13.5 percent, hence I professionally feel Credit?Suisse in no case turns into like Lehman Brothers. But the investors should be prepared for bouts of volatility in the equity markets for another two months.

Thanks for sparing your precious time for reading this article.

Regards