Home / News / World /  Recession Trigger? Credit Suisse 'free fall' a reminder of the Lehman moment

Credit Suisse Group AG's free fall continues with the shares hitting a fresh record low after its CEO's attempts to reassure markets on its financial stability only added to the sense of turmoil. This comes amid rumours that No. 2 Swiss bank and one of the largest global investment banks is on the verge of collapse.

Over the weekend, the bank's CEO, Ulrich Koerner had sought to calm employees and the markets after the stock touched a record low and credit-default swaps climbed. 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 plans.

The Financial Times has reported that the 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."

A year ago, Credit Suisse had a market cap of $22.3 billion. Today, its market value is only $10.4 billion and the shares have fallen 56.2%. Its credit default swaps (CDS) costs have also hit the highest level since 2008. CDS offers protection against a company defaulting on its bonds. Experts believe that even though these levels are far from distressed and are part of a broad market selloff, they signify its deteriorating perceptions of credit-worthiness.

According to reports, its employee morale has been gloomy and the bank has not yet renewed the contracts of certain contractors. The bank has just lost one of its senior dealmakers, Jens Welter, who left to join Citigroup after 27 years with the establishment. 

For many, Credit Suisse's market turmoil is a dark reminder of the Lehman crisis, which triggered a global meltdown in 2008. It is being speculated that a negative outcome is likely to cause a shock similar to that caused by the bankruptcy of the U.S. bank Lehman Brothers in September 2008.

Wall Street Journal Editor, Spencer Jakab, compared the statements made by two respective CEOs to draw a comparison on the situation, '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." Credit Suisse CEO Sept 30, 2022. "Our capital position at the moment is strong." Lehman Brothers CFO Sept 8, 2008.

Grahman Stephan a famous voice on US equity markets tweeted, “$600 Billion: What Lehman Brothers held in assets when they crashed and took the economy with them. $2800 Billion: What Credit Suisse and Deutsche Bank control in AUM. 4.6x more. Credit Suisse is at a 'Critical Moment' now, says the CEO. What lies in store for the world?"

He further went on to add, stocks of both banks have suffered an absolute rout so far, with a 40% crash in one year. 

With worries also trickling over performance of Deutsche many feel, they are too big to fall.

There are so many market indicators that we are heading towards a major financial crisis, feels James Melville

October 27 is being seen as the D-Day for the bank where the CEO is expected to present a strategic plan to avoid filing for bankruptcy. This should include the divestment of investment banking activities, the black sheep, speculate the markets. 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, a Bloomberg report stated.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout