šÆ Credit Suisse: The Next Bank to Fall?
With 3 major US Banks falling last week, could Credit Suisse be the next one to fall? Or will $54 billion be enough to keep it going? ReadOn!
76%!Ā
Thatās how much Credit Suisse shares have fallen in the last 12 months (as on 15 March 2023).
Just in the last 5 days, the banksā shares have declined by 35%!
What is going on?
Why is one of the worldās biggest banks falling?
Letās take a lookā¦
š¦ Whatās Going on with Banks?
The whole financial world is on shaky ground right now.
Not one, not two, but three major US banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have fallen in the last few days!
The tremors are being felt throughout the entire financial system.
This series of falls has made both investors and stakeholders wary of banks.
Theyāre so cautious now that theyāre dumping banksā shares on the tiniest signs of weakness!
Credit Suisseās sign of weakness: Saudi National Bank, Credit Suisseās biggest shareholder, said it will no longer invest in the bank.
Wait, why?
š Credit Suisseās Rising Problems
The bank has not only been witnessing loss after loss, but it has also been involved in several scandals.
It has been accused of supporting the mafia, holding the money of drug dealers and torturers, being involved in a Mozambique loan scandal, and whatnot.
Plus, it saw its lowest trading revenue in a whole century.Ā
It was also involved in two major scams: the Archegos Capital scam and the Greensill Capital scam. (You can read more about it here).Ā
With these two scams, Credit Suisse lost $5.5 billion and investorsā trust all at once.Ā
It shut down its Prime Finance business (the business that catered to hedge funds like Archegos, providing them services like trading, lending and so on).Ā
Now this shutdown was the seed for another crisis.
You see, the Prime Finance business was a big earner.Ā
Right now, Credit Suisse's major business comes from wealth management and investment banking.
The wealth management arm is doing okay, but investment banking? Not so much.
This could be due to the current global funding landscape. The armās core strengths of financing, M&A and SPAC deal support are not in a lot of demand right now. Result?
Business is down and losses are mounting.Ā
Other investment banking companies like JP Morgan and Goldman Sachs have also seen revenue decline. But Credit Suisse has been hit harder due to its scandals.
In 2022 also, the bankās performance has been pretty bad. Its revenue declined and losses increased 5x.
Whatās more?
Credit Suisse said that it found āmaterial weaknessā, meaning major mistakes, in its financial reporting.
This acknowledgement was the last nail in the coffin.
Shareholders had had enough, they started dumping shares.
Banks with ties to Credit Suisse are buying credit default swaps to protect themselves from Credit Suisseās fall.
A credit default swap is like a financial insurance policy. Instead of protecting your car or house, it protects against deadbeat debtors. It's the financial equivalent of saying "I bet you this guy won't pay me back, but I'm willing to hedge my bet just in case."
And the world is praying that we donāt see another major financial crisis.
How will this impact the world?
š The Impact on the World
Credit Suisse funds 60% of its assets by borrowing money.Ā
If it cannot pay this money back, it could cause a major liquidity crisis in the entire inter-banking system.
Yes, bank failures are scary.
So many banks, hedge funds, institutional investors and depositors are connected to JUST one bank. If one falls, it takes down the entire system.Ā
Thatās exactly what happened in 2008.
And the world fears it could happen now.
But, but. There is a tiny ray of hope here.
The Swiss National Bank has offered to lend it $54 billion to survive in these tough times.
But now the question is: for how long will the Swiss National Bank be able to avoid Credit Suisseās fall?
The bank has been in trouble for quite some time now. Will this money be enough to bring meaningful change? Or is it just delaying the inevitable?
Share this with your friends via WhatsApp and help them grow! See you tomorrow :)
If you are coming here for the very first time: Donāt forget to join us on WhatsApp to get daily updates! š
Well it's an unwarranted panic. The Saudi investor did say that they will not invest more money because of regulatory issues and that the fundamentals were solid. Only the part of "not investing more" was highlighted. The "Material weaknesses" were not in the reporting itself but in controlling the reports. I have bought some shares in the last two days and I believe that in the next few months it will be the best investment I have done. Panic has never been the best advisor.