One of the world’s biggest banks insists it is in a “strong” financial position, amid fears of a looming Lehman Brothers moment that could spark a major crisis.
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Credit Suisse is scrambling to reassure investors and clients about its liquidity and capital position as rumours swirl that the major global investment bank is on the verge of collapse.
The troubled Swiss lender — which has seen its share price plunge by 60 per cent over the past year to a near record low, following a string of scandals and losses — saw a sharp rise in the spreads on its credit default swaps on Friday, sparking fevered online speculation.
Credit default swaps offer protection against a company defaulting on its bonds.
The rapid rise last week of around 15 per cent, to levels last seen in 2009 during the financial crisis, suggested investors were worried about Credit Suisse’s financial health.
The Financial Times reports senior Credit Suisse executives spent the weekend hitting the phones trying to calm nerves.
“The teams are actively engaging with our top clients and counterparties this weekend,” an executive told the newspaper. “We are also getting incoming calls from our top investors with messages of support.”
That came after the group’s chief executive, Ulrich Koerner, issued a memo to staff on Friday saying the bank was at a “critical moment” as it prepares for its latest overhaul.
The details of the major restructuring, which is expected to include up to 5000 job cuts and asset sales, are set to be revealed in a strategic review on October 27.
In the memo, Mr Koerner stressed the bank’s strength, telling employees not to confuse the “day-to-day” share price performance with its “strong capital base and liquidity position”.
Credit Suisse insists it is in a strong financial position. Spencer Platt/Getty Images/AFP
“No doubt there will be more noise in the markets and the press between now and the end of October,” he wrote.
“All I can tell you is to remain disciplined and stay as close as ever to your clients and colleagues. I know it’s not easy to remain focused amid the many stories you read in the media — in particular, given the many factually inaccurate statements being made. That said, I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank.”
Speaking to the Financial Times, a Credit Suisse executive also denied recent reports that the bank had approached investors about raising more capital.
The executive insisted that the bank was trying to avoid such a move with its share price near record lows and higher borrowing costs due to ratings downgrades.
As Bloomberg noted last week, the market capitalisation of Switzerland’s second-largest bank has dropped to around 10 billion Swiss francs ($15.8 billion), down from more than 30 billion ($47.5 billion) as recently as March 2021, meaning any share sale would be highly dilutive to long-time investors.
Global financial markets are on edge. Picture: Gaye Gerard/NCA NewsWire
Analysts have estimated Credit Suisse needs to raise $4 billion Swiss francs ($6.3 billion) even after selling some assets to fund its restructuring, growth efforts and any unknowns, the report added.
Credit Suisse executives have previously noted that the bank’s CET1 capital ratio, a measure of financial strength which compares a bank’s capital against its assets, was 13.5 per cent as of June 30, well above the 10 per cent required by Swiss authorities and the international regulatory minimum of 8 per cent.
“A point of concern for many stakeholders, including speculation by the media, continues to be our capitalisation and financial strength,” staff were told in another internal note on Sunday.
“Our position in this respect is clear. Credit Suisse has a strong capital and liquidity position and balance sheet. Share price developments do not change this fact.”
Online commentators remain unconvinced, with Twitter users mockingly referring to the bank as “Debit Suisse”.
Meanwhile Deutsche Bank, which has seen its share price plunge 40 per cent over the past year, is also rumoured to be in trouble, with its credit default swaps also rising in recent days as analysts raise similar questions about the German lender’s financial health.
Both Credit Suisse and Deutsche Bank are deemed global systemically important banks (G-SIBs), or “too big to fail”, meaning both would likely be subject to government bailouts.
Together they manage around $US2.8 trillion ($4.4 trillion) in assets.
Credit Suisse has been contacted for comment.