One Of The World’s Biggest Banks Is Collapsing?
Credit Suisse, one of the largest banks in the world has seen its stock drop more than 50% in the last six months with credit default swaps rising.
Could we be headed for the next big bank collapse, akin to what we saw in 2008? There are some warning signs that could be pointed in that direction and it could once again be starting with the big banks. Switzerland’s Credit Suisse has seen a major dip in its stock price over both the long and short term and it could be one of the harbingers of financial demise. There has become increasing concern about the bank’s ability to stay in business without help from other institutions.
According to CNBC and other sources, Credit Suisse saw a dip of nearly 10% in its stock price in over-the-weekend trading which continues a downward path over the last six months which has seen more than a 50% drop. It’s a troubling sign for the bank which could be facing down-chain problems similar to what we’ve seen in massive market upheavals of the past. And the current trends have some experts concerned about the bank’s long-term health as well as how this situation compares to what we saw 14 years ago.
One of the biggest issues facing Credit Suisse right now is the increase in credit default swaps which had climbed more than 50 basis points over the weekend. Essentially, credit default swaps, which became a major talking point in the 2008 crisis, are ways for investors to offload risk in an asset if it appears there’s a risk of default. With credit default swaps increasing for Credit Suisse, some have used this as a marker that sentiment around the bank in financial sectors is reaching critically poor levels.
For their part, Credit Suisse has tried to assure investors and the public alike that there is no risk of the bank going belly up. The bank reported a market capitalization of $9.85 trillion with roughly $812 billion in assets, making it the 41st biggest bank in the world. But the company had been rumored to also be seeking to raise additional capital as well as allaying current investor concern over its ongoing situation. Namely, the stock has been tanking for quite some time now with little done to reverse the trend.
Remember that in 2008, a failing housing market among many other issues caused a financial crisis that saw companies like Lehman Brothers file for bankruptcy, Bear Sterns sold off to JP Morgan for pennies on the dollar and AIG receive a massive bailout among many other market machinations. Does the Credit Suisse predicament cause the same concern? There are certainly markers even if the company has assured others that this isn’t a risk.
Credit Suisse had already said over the summer that it was scaling back on investments and was cutting costs as well. If the stock continues its decline and credit default swaps continue to increase we could be seeing the bank headed for real trouble. With the markets, in general, in decline, there still exists sentiment from institutional investors that more pain could be coming in these sectors and there’s a chance that what we are seeing with Credit Suisse is just the beginning.
