Oh, the sweet sound of investors hammering away at Credit Suisse, the once-great Swiss banking giant that now finds itself amid a total meltdown. Shares hit a new record low on Monday, tumbling an eye-watering 15% and leaving many investors scratching their heads and wondering what the heck happened.
Well, let me tell you what happened. While other banks like SVB Financial and Signature Bank may have collapsed due to the downturn in the tech and crypto sectors, Credit Suisse’s woes have been entirely of its own making.
For starters, the bank has been bleeding money for five straight quarters, a fact that should have set off alarm bells long ago. And if that wasn’t enough, Credit Suisse also had the misfortune of lending billions to the Archegos family office, only to watch it all go up in smoke when the family’s bets on certain stocks went sour.
Oh, but it gets better. Credit Suisse also had to freeze $10 billion worth of funds tied to Greensil Capital, which only worsened things. And as if that weren’t enough, wealthy clients pulled out around $100 billion from Credit Suisse in the fourth quarter alone. Ouch.
Now, let’s talk numbers. According to FactSet, Credit Suisse shares are currently trading at a measly 0.2 estimated 2023 tangible book value. Meanwhile, rival UBS is sitting pretty at 1.2 times estimated 2023 tangible book value. That’s gotta hurt.
But wait, there’s more. Analysts at Morgan Stanley say that eurozone banks aren’t likely to be forced into selling their bonds like SVB had to, thanks to hedging programs that are already in place.
They also predict that increased deposit competition will be gradual, citing a “higher liquidity starting point” and “lower loan growth” as reasons why deposit competition is less of an issue in Europe.
So, what can we learn from all of this? For starters, it’s a cautionary tale about what can happen when a bank loses sight of its core values and starts playing fast and loose with its finances.
It’s also a reminder that even the mightiest of giants can fall, especially when they ignore warning signs and fail to adapt to changing market conditions.
As for Credit Suisse, let’s just say that the road ahead looks long and rocky. But who knows, maybe they’ll surprise us all and make a comeback. Only time will tell.
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