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CREDIT SUISSE GROUP
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The Swiss, one of the largest banks in the world, manages about half a trillion dollars and the value of its assets is about 760 billion dollars. The bank is in a bad situation at all in recent years. Last year the bank wrote off 4.8 billion dollars due to the investments made by Bill Hwang with the credit lines he received from the bank, which led to the closure of one of the bank’s credit granting funds. At the beginning of the year the chairman of the bank resigned after violating isolation and since 2000 the company’s total fines are more than 11 billion dollars. The company’s stock has fallen by about 60% since last October and since 2007 it has crashed by more than 95%. Today the situation seems to be below The surface is much more serious when the total number of credit default swaps (CDS) on the company are at their highest point since 2008. Simply put, The market is now pricing in the likelihood of bank failure at its highest point since the subprime crisis.
What is a swap contract for credit risks?
Everyone who knows the movie The Big Short remembers the scene when the infamous investor Michael Berry (played by Christian Bale) came to the biggest banks on Wall Street and asked to buy a certain product against the housing market, a kind of short (hence the name of the movie). The same product that Berry bought from the banks in the amount of more than a billion dollars is called CDS – Credit Default Swaps or in Hebrew – the exchange contract for credit risks. CDS is basically a derivative that can be traded, the idea is to provide a kind of insurance for a lender against the case that the person he lends the money to goes bankrupt. The contract basically embodies the borrower’s credit risk and the person who sells it is usually a third party.
If, for example, I fear that a certain company will not be able to pay me the principal and interest payments of a bond I purchased from it (money I lent to it), I can contact another person and offer to sell me insurance (CDS) in case if the company does not return the money to me, he will This. If that person believes that there is a chance that the company will indeed repay the debt, he will agree to sell me the insurance plus a certain premium. Suppose that company went bankrupt or could not meet the bond payments that I purchased, the same investor who issued the contract for me would have to pay the The payments that the company did not transfer to me, This means that for a certain payment I can transfer the risk of the bond to another person. In the case of Michael Berry, those who agreed to sell him the contracts were the same banks that issued mortgage-backed debt instruments, they were so sure that the chance that the payments resulting from the instrument would stop coming and that they would go bankrupt was zero, so they saw Berry’s offer to purchase the contracts from them as ” Easy money”. In practice Michael Berry made a huge fortune from that event since the payments did not come and some of the banks (Lehman Brothers) went bankrupt, which no one believed could happen.
What is actually happening now with Credit Suisse?
The CDS contracts on the bank are at their highest point since 2008 and it can be said thatThe short positions on the bank are at their highest point since the crisis of that year. The CEO of the bank said today in the company’s talks that the bank is at a “critical point of time”, this after only two days ago he told the company’s employees: “I believe that you are not confusing the daily performance of the stock with the bank’s strong capital and great liquidity”, that is After concerns arose regarding layoffs in the company. Let’s just mention that the CFO of the Lehiman brothers was the one who said in September 2008 (before the bank’s collapse) that “the capital situation (of the bank) is strong at this point”.
Is there a chance that we will indeed see the bank collapse?
At the end of the coming month, the bank will publish its financial statements for the last quarter and many fear that we will now witness a repeat of the fall of the Lehman brothers in the subprime crisis when the bank is apparently at its weakest point since that time. Another bank that “is in the crosshairs of the market” is Deutsche Bank, whose stock, like Credit Suisse, has fallen by about 95% since 2008 – an all-time low. The possibility that we will once again see the specter of banks going out of business sounds unlikely, but according to the market, the matter can’t really get out of hand and if we don’t receive a notification in the next few days, we will probably find out at the end of the month what is really going on under the surface at Credit Suisse.
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