The concern around Credit Suisse continues to grow

The scenario of a Lehman Brothers, which caused the economic crisis of 2008, tends observers. The Swiss bank is in a bad patch.

Source AFP

The Swiss bank worries observers more and more, and does not seem to be able to extricate itself from its problems.
© SEBASTIEN BOZON / AFP

Published on 03/10/2022 at 10:01 p.m.

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L’Concern is rising a notch around Credit Suisse to the point that questions about a possible “Lehman Brothers moment” are rife, even if specialists rule out this scenario for this bank too big to fail. On Monday, the action of the number two in the Swiss banking sector fell by nearly 11.5% in the first exchanges, reaching a new historic low point at 3.518 Swiss francs after a new round of rumors during the weekend. The stock eventually closed down just under 1%, at CHF 3.94. The Bank of England would be in contact with the Swiss authorities to monitor the bank, said the Telegraph in its Sunday edition and the bank’s leaders would have spent the weekend trying to reassure customers and investors, for its part reported the Financial Times…

For nearly three weeks, its share price has been sinking to low point after low point as rumors swirl around the approach of a balance sheet on its strategy. Considered a restructuring specialist, its new managing director, Ulrich Körner, was given the heavy task at the start of August of carrying out a strategic review to turn the bank around, on which he is due to take stock on October 27. But last week, credit default swaps surged. These derivatives are used by investors to protect themselves against the risks of non-repayment of a debt, their rise meaning that investors demand more guarantees for the obligations linked to Credit Suisse.

The costs of hedging against default risks over a five-year horizon have climbed to their highest level ever, at 293 basis points against 55 at the start of the year, noted Bloomberg News, which specifies that the bank is “Far” from being in a situation of distress, this increase signifying however that the perception of the bank in terms of solvency “is deteriorating”.

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Government takeover or bailout

On social networks, the discussions around a “Lehman Brothers moment”, in reference to the American bank which had failed in 2008 and marked the outbreak of the great financial crisis, spread like wildfire, even if many observers in the world of finance dismiss this risk. ” Is it possible ? asked Ipek Ozkardeskaya, an analyst at Swissquote, in a market note. “Yes, it’s possible, but highly unlikely,” she said.

Credit Suisse is one of the too-big-to-fail banks that has had to set aside a lot more capital since the collapse of Lehman Brothers in order to be able to withstand a crisis without shaking up the rest of the banking sector. The analyst therefore envisages three scenarios: either the bank experiences a “miracle” thanks to its new general manager who strengthens it “as promised”, which allows it to survive and prosper “until the next scandal”, or it becomes ” a nice acquisition target for another bank”, or it is “saved by the Swiss government”.

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” Win time “

Asked about the risk that Credit Suisse will follow a path similar to that of Lehman Brothers, Gary Gensler, the head of the Security and Exchange Commission, the policeman of the American financial markets, did not wish to comment.

Contacted by Agence France-Presse, Finma, its Swiss counterpart, also refrained from commenting. So far, the bank has not leaked anything about its plans ahead of the Oct. 27 update. It simply indicated that its strategic review included possible asset disposals.

“Asset disposals would only be a partial solution,” however, analysts at Jefferies believe. Credit Suisse would be “a forced seller”, at the risk of weighing on the prices obtained and even if disposals would bring in capital, they would risk reducing the bank’s future income, they argue. But they would “buy time until the action recovers and the outlook improves”, a capital increase then becoming “more acceptable”, they weigh.

On Friday, the bank’s chief executive again wrote to his employees in an attempt to reassure them, insisting that the bank had a “solid capital and liquidity base”.