Credit Suisse, The Next Lehman Brothers? 😨

Are we heading towards the next Global Financial Crisis? 😱

🔻 Credit Suisse’s share price dropped by 95% from its top

😳 The Zurich based bank lost $4.5 Bn or ~INR 36,000 Cr. from just one customer (Archegos)

🤯 The Bank has also lost over $10.4 Bn or ~INR 82,500 Cr. in just Financial penalties

😵 Management has also acknowledged that Bank needs re-structuring

❓Is Credit Suisse the next Lehman Brothers?

🥵 Are we going to have another Global Financial Crisis like 2008, i.e., when Nifty fell by 63% from top 🤯

Let us decode in this article 👇🏻

1. Management Commentary and Capital Adequacy Ratios
   
   First let us understand what the management had to say on this
   
   Bank’s Chief Executive Ulrich Koerner has said that, inaccurate statements are being made by the people in Media
   
   And the stock performance should not be confused with the bank’s strong capital position
   
   The banks’ CET 1 Ratio is 13.5% as at the latest reported period as at 30th June, 2022
   
   CET 1 Ratio is a proxy for banks capital as % of its asset
   
   Swiss authorities mandate that this ratio should be at least 10%
   
   Ironically, even Lehman Brothers’ executives gave a similar statement just a month before declaring bankruptcy
   
   Lehman Brothers’ CET 1 Ratio was also 11% just 5 days before declaring bankruptcy
   
   So, it won’t be a complete test to just look at the CET 1 ratio or rely on management’s commentary in times of crisis
   

2. Financial Penalties
   
   The bank has been levied $10.4 Bn worth of Financial penalties till date
   
   Sometimes, the Department of Justice (DoJ) slams penalties on them
   
   Or sometimes the Securities Exchange Commission (SEC) slams penalties on them
   
   Recently, they were charged a penalty of $2 Mn by the Swiss authorities for Cocaine Cash Laundering
   
   This has been a big factor in bank’s profitability and share price decline of 95% from the top
   

3. Past Fiascos That Have Come To Light
   
   In simple terms, bank lent money to Archegos Capital Management to buy stocks and derivatives
   
   The value of shares tanked and the company reported a loss of $4.5 Bn due to this
   
   The total market value of Credit Suisse is $11 Bn
   
   Just imagine the quantum of loss from just one account
   
   Grensill is one such similar case where bank and its investors lost dearly
   
   Clearly, this shows that the credit evaluation mechanism of the bank has not at all been strong
   
   Banks’ credit department trouble small clients so much over irrelevant queries before sanction a small secured loan
   
   Couldn’t they secure such big loans here?
   
   There might be many other cases which might come to light in the due course
   

Yes, the bank is clearly in a troubled position

But the governments across the globe have realised this that letting such a big bank fail can have very adverse effects on the global economy

I personally do not feel that even if the bank fixes its issues, the authorities would let it fail

Let us wait for the management’s position that will be announced on 27th October, 2022

Liked our content? Share this with your friends

---

Also, we are conducting a webinar today (14th Oct) on the results of IT sector companies at 9PM. Join our FREE community today

Want to take your Personal Finance Knowledge to a different level?

Check out our courses around Personal Finance, Fundamental Analysis, Mutual Funds, Basics of Stock Market etc. here