Credit Suisse risk gauge at record high, shares hit new low
CREDIT Suisse Group’s gauge of credit risk rose to a record high, while its stock hit a fresh low, adding to the turmoil after the bank’s attempts to reassure markets on its financial stability backfired.
The five-year credit default swaps price of about 293 basis points is up from about 55 basis points at the start of the year and at the highest ever, said ICE Data Services. At the same time, the shares dropped as much as 12 per cent in Zurich on Monday (Oct 3) and have lost about 60 per cent just this year alone, on track for the biggest annual drop in Credit Suisse’s history.
Chief executive officer (CEO) Ulrich Koerner had sought to calm employees and the markets over the weekend, only to see his carefully-worded memo have the opposite effect. While touting the bank’s capital levels and liquidity, he acknowledged that the firm was facing a “critical moment” as it worked towards its latest overhaul.
He also told employees that he will be sending them a regular update until the firm announces the new strategic plan on Oct 27. At the same time, Credit Suisse again sent around talking points to executives dealing with clients who brought up the credit default swaps, said sources.
While the credit default swap (CDS) levels are still far from distressed and are part of a broad market selloff, they signify deteriorating perceptions of creditworthiness for the scandal-hit bank in the current environment.
Some clients have used the rise in the CDS this year to ask questions, negotiate prices or use competitors, the sources said, asking to remain anonymous discussing confidential conversations.
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Credit Suisse declined to comment via a company spokesman.
Some prominent figures took to Twitter over the weekend to dismiss some of the rumours prompted by the widened CDS spread as “scaremongering”. Saba Capital Management’s Boaz Weinstein tweeted: “Take a deep breath”, and compared the situation to when Morgan Stanley’s CDS was twice as wide in 2011 and 2012.
Koerner, named CEO in late July, has had to deal with market speculation, banker exits and capital doubts as he seeks to set a path forward. The lender is currently finalising plans that will likely bring sweeping changes to its investment bank and may include cutting thousands of jobs over a number of years, Bloomberg has reported.
Koerner’s memo was the second straight Friday missive as speculation over the beleaguered bank’s future increases. Analysts at KBW estimated that the firm may need to raise 4 billion Swiss francs (S$4.08 billion) of capital even after selling some assets to fund any restructuring, growth efforts and any unknowns.
Credit Suisse’s market capitalisation has dropped to around 9.5 billion Swiss francs, meaning any share sale would be highly dilutive to longtime holders. The market value was above 30 billion francs as recently as March 2021. BLOOMBERG
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