Credit Suisse insolvent: is there a fire in the lake?
Hit or miss – The world economy is currently in a complex and tense situation. Uncertainty reigns supreme in the financial markets. The post-traumatic syndrome of the 2008 subprime crisis is surely there for many. Although history does not repeat itself, it often rhymes, to use the words of Mark Twain. This sentence is particularly relevant when applied to the financial markets because if the cycles are different, their main actor, the human being and his psychology are always the same. Credit Suisse tried to reassure its customers all weekend. This is not necessarily a good omen but offers some respite to the financial institution.
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Avoid systemic contagion
Credit Suisse is one of the largest international financial institutions in the world. Yesterday we discussed its difficulties and the consequences of a potential bankruptcy. According to the FinancialTimesmany executives spent last weekend hanging on the phone to reassure customers and investors.
The insistent rumors of the past week, the negative performance of the Crédit Suisse share (-8.9%) as well as the upward explosion of its Credit Default Swap (insurance against bankruptcy) contributed to putting pressure on the Swiss bank. She was quick to communicate:
“Teams are actively engaging with our key customers and counterparties this weekend. We also receive incoming calls from our main investors with messages of support “.
Chief Executive of Credit Suisse Ulrich Korner wanted to be reassuring about the solvency and the capital of the company, in an internal note shared in recent days. According to him, the fall in the Crédit Suisse share should not be confused with its real financial situation:
” the Credit Suisse has a strong capital and liquidity position and balance sheet. The evolution of stock prices does not change this fact. “.
Korner and Axel Lehmann (Chairman of the Board of Credit Suisse) must present an action plan on October 27 to raise the bar and reassure their partners and investors for good.
Credit Suisse will have to evolve up the slope
Despite successive scandals (Archegos case, proximity to mafias, record fines), Credit Suisse still enjoys a strong brand image. The local branch is still profitable and its international division remains in sight despite everything. In contrast, the investment department could be overexposed and should be restructured in the coming weeks.
We should learn more on October 27, when the results for the third quarter of 2022 should be announced. Credit Suisse was already considering separate its investment activity into three distinct branches, in order to assign a specific risk to each of the branches.
Despite everything, there are some encouraging signs, such as his cash coverage ratio. It is currently 191% as the report FinancialTimes, clearly superior to competing banks. This ratio indicates an institution’s ability to be able to quickly mobilize assets (that is to say that they are liquid) in order to be able to part with them as quickly in the event of a serious problem.
JPMorgan analyst, Kian Abouhossein, is also reassuring regarding the situation: “ From our perspective, looking at corporate finances at the end of the second quarter, we consider Credit Suisse’s capital and liquidity position to be sound. “.
The crisis communication operation seems to have borne fruit so far. A rebound of about 9% was recorded yesterday on the action Credit Suisse. The bank does not rule out selling assets to finance its action plan, but has not yet revealed its strategy. However, the media rescue operation seems to be showing its first effects.
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