Time to Bail on Credit Suisse

tl,dr: Get out of Credit Suisse.

The Swiss bank is suffering severe stress today, with its stock and bond prices plummeting. Depositors and investors are questioning its ability to survive.

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The Swiss National Bank has pledged to offer liquidity to CS if necessary, per Bloomberg.

However, the stock has barely reacted as of Wednesday afternoon in New York. Investors seem unconvinced.

What has gone so wrong at Credit Suisse?

Just about everything. Again from Bloomberg:

Credit Suisse’s failings have included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media. Its association with disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management compounded the sense of an institution that didn’t have a firm grip on its affairs. Many fed up clients have voted with their feet, leading to unprecedented client outflows in late 2022. 

Problems came to a head today as CS’s largest investor, the Saudi National Bank, refused to provide more capital to CS.

Credit Suisse appears to have ample reserves to pay depositors.

It has enough cash and highly liquid assets to pay back half its liabilities quickly. It even has 62 billion Swiss francs of cold, hard cash on deposit at central banks.

Yet its stock is in the toilet, and its bonds trade at levels implying a strong possibility of default. The cost to insure its bonds through credit default swaps is also sky high.

Are all 3 of these markets wrong? Maybe, but I wouldn’t want to make that bet.

For companies and individuals, there is little downside to pulling your money out.

Even if the Swiss National Bank, Federal Reserve, or others bail them out, there could be delays in getting your money. That was the case with SVB.

Can you afford that delay?

In the end, I doubt central banks will let CS collapse. But things could get very messy in the mean time.

What do you think of the problems at Credit Suisse?

Leave a comment and let me know!

More on markets:

SVB Fallout

Where Should Startups Put Their Money Now?

SVB Fails

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