More than a decade has passed since the 2007-2008 financial crisis, when Lehman Brothers, the fourth largest investment bank in the US, collapsed and filed for bankruptcy. Almost 14 years later, Credit Suisse and Deutsche Bank, two of the world’s largest banks, are suffering from distressed valuations and bank default insurance levels are nearing levels not seen since 2008.
Credit Suisse and Deutsche Bank valuations have exploded as investors debate the systemic risk to the global economy
In the first week of October, the global economy continues to look gloomy as energy and gas prices have hit record highs, inflation is at its highest in 40 years in many countries, disrupted supply chains, stock markets have fallen significantly and tensions between the West and Russia has increased.
In the midst of this ailing economy, two of the world’s largest investment banks are reeling from distressed valuations. Market data shows that Credit Suisse Group AG (NYSE: CS) and Deutsche Bank AG (NYSE: DB) are trading at extremely low levels not seen since the 2008 financial crisis.
In late August, Deutsche Bank analyzed the problems associated with Credit Suisse, and the bank’s analysts determined that a $4.1 billion gap needs to be closed to combat the financial institution’s financial health. Additionally, Credit Suisse’s credit default swaps (CDS) are similar to the same CDS values that Lehman Brothers had just prior to the bank’s insolvency.
Credit Suisse CEO Ulrich Koerner recently said his company is facing a “critical moment” and stressed that the Swiss-based financial institution has a “strong capital base and liquidity position”.
Major investor says Credit Suisse CDS is trading like a ‘Lehman moment’ Wallstformainst CEO says ‘anyone who fully trusts Credit Suisse’s accounting also believes in unicorns and the tooth fairy’
Not everyone agrees with Koerner, as a report by investing.com describes that a “major investor who does business with Credit Suisse says the investment bank is a disaster, [and] CDS trades like a “Lehman moment” [is] about to hit.” However, Compcircle Managing Partner Gurmeet Chadha doesn’t believe a major market anomaly is about to emerge.
“Credit Suisse once a year since 2008 [and] once in [two] years Deutsche Bank is on the brink of default”, Chadha tweeted. “With every correction – this speculation starts to come. In my little experience, a black swan event never announces itself.”
Credit Suisse analysts downgrade their own stock to a sell rating pic.twitter.com/SghqtoFnhS
— dr Parik Patel, BA, CFA, ACCA Esq. (@ParikPatelCFA) October 2, 2022
Chadha’s comment hasn’t stopped speculation surrounding the two banks, and many believe catastrophe is imminent. “Credit Suisse is likely going bankrupt,” according to Twitter account Wall Street Silver said his 320,000 followers.
“The collapse in Credit Suisse stock price is a matter of great concern,” Wall Street Silver said. “From $14.90 in February 2021 to $3.90 currently. And at P/B=0.22, markets are saying it is in default and likely broke.”
Credit Suisse, the 4 key numbers:
400b for call liabilities
900b Leveraged Exposure
— Charlie Munger fans (@CharlieMunger00) October 1, 2022
An analysis of the situation published on Seeking Alpha also notes that both Credit Suisse and Deutsche Bank are trading at distressed valuations, and goes on to say that Credit Suisse “is undergoing a painful restructuring.” The author of The Seeking Alpha writes: “[Credit Suisse] is trading at 0.23 times the tangible book [and] Deutsche Bank is trading at 0.3 times tangible book value.” However, the author of Seeking Alpha says Deutsche Bank is working its way through the storm through interest rate advantages. The author adds
Investors should avoid [Credit Suisse] and buy [Deutsche Bank].
Investors believe that the two financial giants are facing a serious crisis and they do not believe the statements made by the CEO of Credit Suisse. Some have criticized the banks’ scrutiny process, believing that this is what Credit Suisse and Deutsche Bank are doing in debt up to your neck and bad loans.
“Tell me the actual number of outstanding bad loans Credit Suisse has to these hedge funds and family offices like Archegos,” said Jason Burack, CEO of Wallstformainst tweeted in August. “Because if you trust your bookkeeping completely, you also believe in unicorns and the tooth fairy.” At the time of writing, the term “Credit Suisse” is a very popular vertical trend on Twitter on Sunday morning (ET) with 46,000 tweets.
Tags in this article 2007-2008 crisis, 2008 financial crisis, CDS, CDS insurance, Credit Default Swap (CDS), Credit Suisse, Credit Suisse CDS, Deutsche Bank, Deutsche Bank issues, distressed ratings, energy prices, financial issues, gas prices, global economy , Gurmeet Chadha, Inflation, Insurance, Jason Burack, Market Data, NYSE:CS, NYSE:DB, Seeking Alpha, Ukraine-Russia War, Wall Street Silver, Wallstformainst
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photo credit: Shutterstock, Pixabay, Wiki Commons, Editorial image rights: Nataly Reinch and Rostislav Ageev
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