Credit Suisse, a Switzerland-based world’s leading bank, said on Friday it has made an offer to repurchase up to 3 billion Swiss francs ($3 billion) of senior debt securities. The bank added that the transactions are consistent with its approach to manage its liability composition and optimise interest expense and allow the global lender to take advantage of market conditions to repurchase debt at attractive prices.
Credit Suisse has been in news for quite some days due to the trouble it faces right now. Its share prices have fallen significantly and many have started comparing the fall to the Lehman Brothers collapse in 2008. Here’s all about the Credit Suisse issue:
What is Happening At Credit Suisse?
The shares of the Switzerland’s second-biggest bank have witnessed a significant decline in the past few days — falling as much as 90 per cent from its all-time high levels. In the current calendar year 2022 itself, its shares have dropped about 60 per cent, with its market capitalisation slipping to nearly $11 billion. The market cap is now lower than Indian banks like HDFC Bank, ICICI Bank, SBI, IndusInd Bank and Axis Bank.
Credit Suisse had about 50,000 employees and $1.62 trillion in assets under management at the end of 2021, as per reports. The bank’s total assets at the end of June 2022 stood at $735 billion.
What Is the Issue?
The trouble at Credit Suisse involved high-profile risk management failures in the past and multiple changes in top leadership since 2020. However, the latest development triggering investor scrutiny is likely to be the September 30 letter by its CEO Ulrich Koerner to Employees. In the letter, the CEO told employees, “I know it’s not easy to remain focused amid the many stories you read in the media — in particular, given the many factually inaccurate statements being made. That said, 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.”
In the second quarter, Credit Suisse slumped to a loss. The bank posted a loss of 1.59 billion Swiss francs (about $1.65 billion) during the quarter, compared with a profit of 253 million Swiss francs a year earlier. In a statement, the bank had said the second-quarter results were “disappointing” and that the bank’s performance was “significantly affected by a number of external factors, including geopolitical, macroeconomic and market headwinds”.
The bank is expected to release its financial results for the third quarter on October 27, during which it is also likely to present a transformation plan.
What Is Credit Default Swap and Its Role In the Issue?
Credit Suisse’s Credit Default Swap (CDS), the cost of insuring the bank’s bonds, recently rose to over a decade high. Under the CDS, if a company fails to meet its repayment obligation, the insurance company pays the amount. An increase in CDS shows more likelihood of a debt default or rising problem in a company, and vice-versa.
The recent sharp rise in Credit Suisse’s CDS, which reached its highest since the global financial crisis of 2008, prompt the investor to sell its shares in the fear of a collapse. Following this, many people also started comparing the fall in the Credit Suisse shares to the collapse of Lehman Brothers, which triggered the global financial crisis of 2008-09.
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