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Credit Suisse, The Next Lehman Brothers? 😨

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Credit Suisse, The Next Lehman Brothers? 😨

Are we heading towards the next Global Financial Crisis? 😱

Oct 14, 2022
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Credit Suisse, The Next Lehman Brothers? 😨

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🔻 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?

Ten years on, the Fed's failings on Lehman Brothers are all too clear |  Laurence M Ball | The Guardian

🥵 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

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