[The Epoch Times, October 17, 2022](The Epoch Times reporter Xu Yiyang and Zhang Zhongyuan interviewed and reported) In the past few weeks, the news that Credit Suisse (Credit Suisse), the second largest bank in Switzerland, may go bankrupt has been fermented several times. . The bank’s growing solvency concerns have raised concerns about a repeat of Lehman Brothers’ bankruptcy in Europe.
Headquartered in Zurich, Switzerland, Credit Suisse with a 166-year history is one of the most important banks in the Western financial system. At present, Credit Suisse has established branches in more than 50 countries and regions around the world, with business spanning traditional commercial banks, investment banks, private banks, shared businesses, etc., with nearly 50,000 employees. Credit Suisse ranks 45th in the 2022 ranking of global banks by size, with total assets exceeding $892 billion.
In recent days, Credit Suisse has suddenly become the focus of the global market, and speculation about whether it will go bankrupt in the future has intensified. Markets are beginning to worry that Credit Suisse may repeat the mistakes of the September 2008 collapse of U.S. investment bank Lehman Brothers, which sparked the worst financial and economic crisis since the Great Depression of the 1930s.
The chief executive officer (CEO), who has only been in office for three months, is trying various measures to save the fate of Credit Suisse’s fall, and the global financial market is uneasy.
what happened?
The incident began on October 1, when ABC business reporter David Taylor tweeted that according to reliable information, a large investment bank was on the verge of bankruptcy. The tweet was later deleted. The market then turned directly to Credit Suisse. In a memo the day before (September 30), the bank’s chief executive, Ulrich Koerner, tried to reassure employees and the market, but his cautious language had the opposite effect.
In the memo, Kerner said Credit Suisse has solid capital and liquidity, but he also acknowledged that Credit Suisse faces a “critical juncture” in its efforts to implement the latest reforms. He told employees he would send them regular updates ahead of the company’s Oct. 27 announcement of its new strategic plan. He also said not to confuse Credit Suisse’s day-to-day share price performance with the bank’s strong capital strength and liquidity.
For this statement, the market ironically said that Lehman Brothers had said the same thing before going bankrupt in 2008.
Affected by various news and performance losses, Credit Suisse has wiped off about 60% of its market value this year and is on track for its biggest annual drop in history.
Credit Suisse’s credit default swaps (CDS) climbed to nearly 250 basis points on Sept. 30, close to levels last seen when Lehman collapsed in 2008. By comparison, Credit Suisse’s CDS at the start of the year was just 57 basis points.
The full name of CDS is Credit Default Swap, which is called “Credit Default Swap” in Chinese. It is a derivative product designed based on bond default. The higher the basis point, the greater the default risk of the bond.
The problem has been around for a long time
Although the topic of this “time bomb” has only recently begun to attract widespread attention, in fact, Credit Suisse has a long history of problems, especially after its two large customers caused it huge losses.
Since 2021, Credit Suisse has been going all the way to thunder. First, Credit Suisse suffered huge losses in the “Archegos Incident”.
The so-called Archegos event refers to the liquidation of Archegos Capital Management in 2021. This is an American hedge fund operating in the name of a family office, focusing on high-leverage derivatives investment in U.S. stocks.
In March 2021, Japan’s Nomura Holdings and Credit Suisse issued a warning that they were expected to face huge losses due to lending to Archegos for securities derivatives trading. This led to a sell-off in global bank stocks on March 29.
Subsequently, Archegos was accused of illegal manipulation of the securities market. From March 2020 to March 2021, the company’s Korean-American founder, Bill Hwang, deliberately borrowed money from banks through misleading and made huge bets on a handful of stocks through complex securities, putting Archegos’ market position on the line. The total size has expanded from $10 billion to $160 billion.
In late March 2021, Bill Hwang sold several stocks due to his inability to sustain manipulation. Almost all of Archegos’ heavily-held stocks saw their prices plummet. And Bill Hwang, who caused this “big blowout of the century”, was also imprisoned for this.
The Archegos fund collapsed, causing losses across Wall Street of more than $10 billion. Credit Suisse also lost $5.5 billion in liquidation, while Nomura Securities, Morgan Stanley and UBS lost $2.85 billion, $900 million and $861 million, respectively.
Credit Suisse said it had added to a range of Archegos holdings before it blew out. However, Credit Suisse’s regulatory authorities did not deal with these risks in a timely and effective manner.
This liquidation storm also triggered a “reshuffle” of Credit Suisse’s management. Credit Suisse Investment Bank CEO Brian Chin and Chief Risk Officer (CRO) Lara Warner both resigned, and Credit Suisse Chairman Urs Rohner also resigned at the end of April 2021.
Around the same time, the collapse of supply chain finance firm Greensill Capital cost Credit Suisse, which financed it, about $3 billion in losses.
A year later, in February 2022, Credit Suisse was revealed to have accepted funds from more than 18,000 criminal clients, including oligarchs and drug dealers, to provide them with money laundering and other services. Credit Suisse was indicted by the court as a result, becoming the first major bank in Swiss history to be found guilty in a criminal case.
Under the multiple blows, Credit Suisse posted losses for three consecutive quarters. Among them, in the fourth quarter of 2021, Credit Suisse’s net loss was about 2.2 billion US dollars.
By 2022, Credit Suisse will catch up with the interest rate hike, and its losses will be magnified. The net losses attributable to the parent company in the first and second quarters of this year amounted to CHF 273 million (approximately US$ 296 million) and CHF 1.593 billion (approximately US$ 1.72 billion), respectively, representing a loss of CHF 1.866 billion (approximately US$ 1.72 billion) in the first half of this year. $2.016 billion).
Will the Credit Suisse crisis trigger global financial shocks?
Could Credit Suisse’s collapse rumors become a reality? Xie Tian, professor of marketing at the University of South Carolina’s Aiken School of Business and John Olin Palm Chair Professor, told The Epoch Times on October 17 that, from the current situation, Credit Suisse may indeed become the next Lehman. brother. However, Lehman Brothers’ main business is in the United States, and it affects the financial industry in the United States, and then expands its influence from the United States to the world.
Xie Tian said that the Credit Suisse crisis will indeed have some negative impacts on the global economy, especially the financial industry. However, due to its large business scope and wide coverage, its impact may not necessarily reach the level of Lehman Brothers.
Xie Tian also said that people usually have high respect for Credit Suisse and UBS because they are very stable. But such a robust and conservative old European banking system can also go wrong, and it does come as a shock and surprise to people. For these banks, reputation is the first and almost the most important asset.
Song Weijun, a political and economic researcher at Tianjun, an independent overseas think tank, said in an interview with The Epoch Times on October 16 that this is just a phenomenon that appears in the monetary tightening cycle. When countries tighten monetary policies, financial risks are high, and Credit Suisse is just a performance.
Song Weijun said, “The economic recession and financial risks are high. Take the United States as an example. If there is no support for the US dollar, it will fall into the situation of the United Kingdom: the tax cut plan of the new cabinet is blocked, the pound falls, the Bank of England has to rescue the market, increase the The amount of bond purchases, otherwise it will cause a chain reaction.”
He said that after the last financial crisis, countries have strengthened financial supervision, and the third edition of the Basel Accord has been updated to deal with the lack of supervision of the financial system that appeared in the last financial crisis.
“The agreement strengthens the capital adequacy ratio requirements and adds new requirements on liquidity and leverage ratios. Credit Suisse and others should have no problem in this regard.” Song Weijun said, “As for the situation, it is also the same as the above. It is related to the environment. Of course, it cannot be ruled out that after the risk of a financial institution breaks out, there will be some chain reactions. With the current global turmoil, anything can happen.”
Chartered market technical analyst “Teacher Sun of Political Economy” also said in his YouTube self-media channel program on October 13 that the Credit Suisse crisis is not enough to form a global economic crisis and collapse, but it is indeed an indicator event. It marks one step closer to the financial crisis. So this is an event that is not a crisis but a crisis.
He said that one of the direct reasons for the formation of the Credit Suisse crisis was the increase in credit costs, and the other was the loss of its investment projects, not the single reason for the Fed’s interest rate hike. He said, in fact, whether it is Credit Suisse or other financial institutions, there is such a situation of internal chaos and random investment. Historically, there has been a lot of problems within Credit Suisse, and this could be a real risk, and a higher risk than external interest rate risk.
“If you want to ask whether the phenomenon of Credit Suisse is a common phenomenon? I tend to give a positive answer to this question, that is, this kind of thing at Credit Suisse is universal.” He said that the Credit Suisse incident did make People worry, “We are getting closer and closer to the financial crisis, and every step is approaching the brink of a cliff. But why is this crisis not enough to detonate the global economy? The reason is that the government will definitely come to the bottom, and the relevant departments will definitely save the brink of collapse. Financial institution.”
What will happen next?
The market’s eyes will be focused on October 27, because Credit Suisse will release its third-quarter earnings report, and it will announce its strategy and roadmap to deal with the crisis on the same day.
Currently, Credit Suisse needs to raise about $3 billion to increase capital and deal with a deep restructuring of the bank’s business to avoid collapse.
On October 7, Credit Suisse announced that it will buy back some senior debt securities of operating companies (OpCo) for approximately 3 billion Swiss francs (about 2.98 billion US dollars) in cash. Credit Suisse announced on the same day that it is making cash offers for eight senior debt securities denominated in euros or sterling, with a total price of no more than 1 billion euros (about 970 million US dollars). At the same time, Credit Suisse also announced a separate cash tender offer for 12 types of US dollar-denominated senior debt, with a total value of up to US$2 billion.
In the short term, Credit Suisse may only be able to sell its own assets and business segments. For example, it is considering selling its Savoy hotel in Zurich to gain more liquidity.
In addition to Credit Suisse’s self-help, Swiss officials have also revealed positive rescue signals. On October 5, local time, Andrea Maechler, a member of the Swiss National Bank’s governing board, said in public that the Swiss National Bank is closely monitoring the situation of Credit Suisse.
Responsible editor: Lian Shuhua#