Don't panic: Credit Suisse is not the next Lehman Brothers
Junior bankers and traders who are either already at Credit Suisse or who hold offers to join Credit Suisse next year can come out of their safe spaces. Contrary to reports this weekend, the bank is unlikely to be going under. So say some of the most knowledgeable figures in the industry, many of whom actually did witness several banks going under in 2008.
Where did the rumour of Credit Suisse's imminent demise come from? Twitter appears to hold the smoking gun. People like Spencer Jakab of the Wall Street Journal's Head on the Street column, and various pundits have been putting out Tweets like those below, following last Friday's memo from the (latest) Credit Suisse CEO, Ulrich Koerner, informing staff that the "day-to-day stock price performance" of the bank should not be confused with its "strong capital base and liquidity position."
"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.
— Spencer Jakab (@Spencerjakab) October 1, 2022
"Our capital position at the moment is strong." Lehman Brothers CFO Sept 8, 2008. pic.twitter.com/WBTgqb1APa
The Financial Times says Credit Suisse has spent the weekend reassuring investors that all is fine. Some are convinced. Credit Suisse may be the "worst big bank in Europe" but it's not about to go under, said one.
Nonetheless, some Credit Suisse juniors appear to be panicking. A thread on forum website Wall Street Oasis is tinged with hysteria about rescinded job offers and the danger of finding yourself "screwed in the event of a crisis." - "It's honestly a bit scary," says one CS first year.
Fortunately, Credit Suisse itself isn't the only one offering reassurance. Boaz Weinstein, the financial crisis CDS king and founder of Saba Capital Management, also thinks the Credit-Suisse-is-Lehman narrative is overblown and has been saying as much on Twitter.
Oh my, this feels like a concerted effort at scaremongering. See my recent tweets. In 2011-2012 Morgan Stanley CDS was twice as wide as Credit Suisse is today. Take a deep breath guys. https://t.co/mEr2rPsCDP
— boaz weinstein (@boazweinstein) October 1, 2022
The tweet below feels like scaremongering, perhaps unintentionally. Or it’s confusing steeply falling equity with default risk. Is General Motors also on the bring of failing? Their CDS is identical to Credit Suisse. We should be careful not to yell 🔥. https://t.co/hvbxersfXy
— boaz weinstein (@boazweinstein) October 1, 2022
The "scaremongering" around Credit Suisse is "gross", says Weinstein in another tweet. Others, including some journalists, seem to share that view: Tom Braithwaite at the FT suggested that Spencer Jakab might want to delete his Tweet. He didn't.
The fundamental difference between Lehman in 2008 and Credit Suisse in 2022 is expressed in another Twitter comment observing that Credit Suisse's detractors, "are confusing a US investment bank whose CEO had no friends among the authorities with a Swiss banking behemoth plugged into a country that prides itself on the safety of its institutions… and its banks."
Even some of Credit Suisse's least enthusiastic recently ex-traders and MDs agree with the verdict that all is fine. "It's BS," says one of the weekend panic. "Credit Suisse has been de-risking and now has one of the safest balance sheets in the market. It's been under heavy scrutiny for the past two years and claims that it's the next Lehman are complete nonsense from people with no understanding of financial analysis."
Credit Suisse may not be a good business, but that doesn't mean it's also very risky, he adds. "The market is volatile and Credit Suisse is not liked, but they don't need that much capital and their CDS spreads are half the level of US banks in 2012."
Another recently ex-MD points to Credit Suisse's Thursday update for fixed income investors, showing that it exceeds capital requirements. "The credit situation is ok, but Credit Suisse probably still needs to raise equity soon to send a strong message to investors," he says. One way the bank can do this is by selling its securitisation business as promised. Benjamin Goy at Deutsche Bank calculated last month that Credit Suisse needed to raise $4.1bn, and said the securitized products business could raise nearly two thirds of that. In a note last week, analysts at UBS said that even a partial sale could bolster capital ratios by $1bn.
While Credit Suisse may not be "the next Lehman", it could still be turn out to be a slightly flaky employer, especially if you're in the investment bank. At the very least, this weekend's events are likely to make the bank more mindful of capital conservation and less inclined to sustain a large and capital- hungry investment bank. Knives that were being sharpened for the coming strategy announcement may now be sharper still. And if, for any reason, the Swiss central bank does get involved, the investment bank is likely to be the first to go: "They'd completely change the bank and focus on Swiss Universal banking and private banking/wealth management," says one recently ex-MD.
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