Hello and welcome, you are listening to Patrick boil on
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dot-org. Look my mom.
Always told me if you can't. Say something, nice, say nothing
at all. And for that reason, I try not
to say much about Credit Suisse on my channel.
But equally, I find when I look at my old videos, I do seem to
keep mentioning them and I'm not always nice this morning.
I realized that my Mom stole that expression from the Disney
film Bambi. She just corrected the grammar a
little bit. And I'm not sure that I should
go through life following the moral teachings of an animated
rabbit. So I suppose we should once
again discuss the goings-on at Credit.
Suisse now, most of you who don't live in California,
probably first heard of Silicon Valley Bank last week when
everything fell apart, but I'm sure you're familiar with
Credit. Suisse, it's a big firm.
Last time I checked it was the eighth largest publicly listed
Bank in the world by market cap. Oh, Hold on, it's a while since
I checked and it seems to have lost around a hundred billion
dollars in market cap over the last 15 years, which is bad.
And it's actually the 155th largest bank in the world today.
So, yeah, it's around the size of Webster, Financial of
Stamford Connecticut, which I'm sure is a fine institution,
okay. I can tell from your confused,
look, that not all of. You have heard of Webster,
Financial of Stamford, Connecticut, Well, what else is
there Crocs? You know, those rubber clogs
Credit Suisse is a bit smaller than Crocs the company that
makes those shoes. So, yeah, Credit Suisse.
Maybe they could diversify into the flip-flop industry and
eventually be bigger than Crocs, who knows?
Anyhow. It hasn't been a great week for
Credit. Suisse its biggest investor was
asked earlier this week if he would buy more stock in the
bank. I upload a journalist and he
replied, absolutely not. Here's the clip.
And the answer is absolutely not for many reasons.
I'll side the simplest reason, which is Regulatory and
statuary. We now, own 9.8 percent of the
bank, if we go above 10%, all kinds of new rules kick in.
Now, I think if he had said, I'd love to, but I'm restricted by
various regulations from doing so.
Things, might have gone a little bit better.
Lutely not was absolutely, not the best thing to say, at a
time. When people are eyeing banks
with suspicion, so that wording caused some Jitters and the
stock price fell as much as Twenty Eight percent in the
biggest one-day sell-off in the stock on record leaving it down
more than 75 percent. Over the last year, it's bonds
fell to levels that signal financial distress which
Securities do in 2026 dropping by 70 cents on the dollar, the
move sparked, a sell-off in both European and US Bank.
Stocks. As investors were already on
edge due to the bank runs last week in the United States.
Now, I'm not sure if it's true but I'm hearing the rumor that
David jamaat and Jason have invited.
Amar the big Saudi investor to join the All In podcast as
sparking Bank runs has become their new thing.
Now that no one's interested in. Facts or blitzscale startups
anymore. So Credit Suisse bounce back
yesterday after receiving a fifty four billion dollar loan
from the Swiss Central Bank and instantly announcing plans to
buy back about three billion dollars worth of their dead to
boost liquidity and calm investors so far.
There's been no mention of expanding into the horrible
Footwear Market. I did mock up this clog in
Photoshop for Them to try and help out.
I'm not that good at Photoshop but I just figured that it might
be helpful. Now, the Swiss National Bank act
giving this credit line to Credit, Suisse obviously
indicates a few things firstly that there's no need for a run
on the bank as there will be enough money for all depositors.
Secondly, it signals that the Swiss National Bank and swiss
Regulators have examined, the bank and the fact that they're
willing to make this loan indicates that they I think that
things are okay at Credit Suisse and thirdly if Credit Suisse can
buy back a lot of its debt at a discount.
This will show us a profit in their accounts for all its
candles and mistakes. Credit Suisse did have a strong
and liquid balance sheet as of Wednesday.
Now we've seen a few big issues with banks over the last week.
The most notable ones being Silicon Valley Bank and Credit.
Suisse these crises are very different to each But they are
still somewhat linked. Silicon Valley Banks.
Failure can mostly be explained by their failure to properly.
Manage their interest rate risk. Credit Suisse is in a very
different position partially because it's classified as a,
global systemically important Banks, and it's subject to tough
liquidity rules Capital rules and stress tests which as VB was
exempt from, but all of the Prudential banking rules might
have Event a Credit Suisse from the financial problems that
Silicon Valley Bank succumb to but Credit.
Suisse has instead been plagued by repeated scandals from spying
on a former employee. A criminal conviction for
allowing drug dealers to launder money massive leak of client
data. To the media are key goes green.
Sill, Mozambique tuna, bonds, the list is too long.
You would maybe even think that this willingness to break laws
and skirt regulations. Add to the prophets at Credit
Suisse but no they've managed to be involved in every Scandal and
always lose money. On a serious note though.
These scandals show systemic failures in risk management at
the farm which destroyed the bank's reputation and ultimately
hit the firm's Bottom Line Credit Suisse released their
annual report on Tuesday. Announcing in it that management
did not design and maintain an effective.
Risk assessment process to identify and analyze the risk of
material misstatement in its financial statement.
Going on to say that it's full year 2022, results were
unaffected by this. So while the situations are very
different at Silicon Valley bank and credit Suite, they're both
huge failures of risk management.
The loss of reputation at Credit Suisse over the years has led to
an exodus of their most talented staff.
Off the best Bankers, don't want to walk around with credit Suite
printed on their business card. It doesn't help to attract
business and it does nothing for their resumes.
The bad reputation will have equally made it more difficult
to attract any new business. Why would someone choose to deal
with Credit? Suisse, when there are other
reputable banks that they could do business with wealth
management, customers appear to have lost fade in The Firm to
the wealth management business. Business suffered from over a
hundred million dollars in outflows in the final quarter of
2022. The actions of the Swiss
National Bank mean, the disaster has been averted for the time
being but Credit, Suisse is possibly still critically
wounded their bond slid further. Yesterday, one of their dollar
bonds maturing in 2027, gave up its gains to trade down almost
five percent on the day to 66 cents on the dollar and Their
dollar Bond maturing in 2028 sled 13 percent to just below 64
cents. These Bond, declines came
despite a rebound in the bank shares on Thursday, prices below
70 cents on the dollar are generally considered to be a
marker of distress, the same bonds had been trading in the
80s and 90s respectively as recently as Monday this week,
some of the share price recovery was possibly driven by Sean.
Recovering as the short thesis is a lot weaker now that the
Swiss National Bank is back stopping the firm.
There are a number of reasons to believe that the European
banking system is in much better shape to whether the stresses of
the current banking environment than the u.s. regional Banks of
similar size as Don Davies of front-line analysts.
Argues, in the Ft, this is not because European banks are very
good. It's precisely because they
Historically been quite bad, a regulatory filing published by
the French Bank. BNP power bar on Tuesday, shows
that its profit and loss account, has very little
sensitivity to interest rate movement, the Spanish Bank BBVA.
As another example, has hardly any sensitivity of its
shareholder funds to interest rate, as Davies points out
practically every banking regulation, in existence, at a
time when things went badly wrong and Europe, spent a decade
toughening up banking regulation, because it went
through a rolling multi-year, Euro crisis, the European
Regulators. Have a detailed set of standards
for testing interest rate risk with the idea that they'll be
applied to every significant Bank in Europe, unrealized
losses are not ignored under this regime and the global basil
standards on stable funding. Are applied across the entire
banking sector. This is quite different to the
regulator's applied to Community Banks, in the United States, who
lobbied the government for regulatory exemptions over.
The years, European banks have underperformed US Banks.
Since the credit crunch, largely driven by this additional
regulatory burden that they face.
But the idea is that if Regulators are going to agree to
bail out Banks, from time to time, Time.
They should reasonably put restrictions in place as to how
much risk. These banks are allowed to take
the economist Matthew Klein argued in a blog post earlier
this week that Banks today can be seen as speculative
investment funds grafted on top of critical infrastructure and
that this structure is designed to extract subsidies from the
rest of society, by threatening civilians would crises if the
banks bet are ever allowed. Fail.
He goes on to argue that the US government's response to the
collapses of Silicon Valley Bank and Signature Bank, effectively
removing the cap on Deposit Insurance.
While letting lenders borrow relatively cheaply against
fictitious asset values, is a reminder that those threats
usually work. Now while credit, suisse's
balance sheet was reasonably strong.
Unlike the u.s. banks that collapsed last week.
His reputation was obviously not the unending list of scandals.
Most of them coming from the farm, Senior Management and its
Investment Banking division have destroyed the ones impressive
brand, this loss of reputation has driven away the top talent
and the firm's customers collapsing profitability.
We've seen this week that, this profitability issue in a climate
of fear can put a firm like credit Suite on the Rocks.
So what might Happen. Next with the Swiss National
Bank back in Credit Suisse and with its balance sheet and
decent order. It seems highly unlikely that
liquidity issues will sink the ship.
This makes a Silicon Valley Bank style Bank Run way less likely
but while the central bank can provide liquidity it can't
provide a good business model and that's what Credit Suisse
need customers. Have to see a good reason as to
why they should choose to deal with.
A tarnished brand like Credit Suisse the Swiss National Bank
does have the tools to prevent an immediate bank failure, but
the management of credit Suite has to find a way of turning
around the firm's reputation and its profitability which are
linked for investors. The bank's liquidity is not its
fundamental problem. Instead, they worried that its
business model is simply unprofitable.
The current CEO has been in Israel for less than a year.
And it's a difficult path ahead of him in October.
He announced a restructuring plan to cut costs, reduce the
size of the workforce and sell part of the securitized products
unit to Pimco and Apollo. He additionally outlined plans
to spin off the capital markets and advisory business over the
next three years under a rejuvinated CS first.
Boston Brand the options on the table if things continue in
their current Action include tearing up this restructuring
plan spinning off its with unit, a full takeover by another bank
or in a worst case scenario the resolution of the bank in a call
with clients on Wednesday, JPMorgan analyst key in Abu
Hussein said that at Credit Suisse is most likely Destiny
was a takeover by its Swiss rifle UPS.
Now, a merger between Switzerland's, two largest
banks. Been discussed for quite some
time but has been seen as unlikely for antitrust reasons.
The current situation has led to speculation that such a takeover
could occur. If Regulators felt it was the
best way of stabilizing, one of the country's most important
financial institutions under a more extreme scenario.
Some are arguing that the Central Bank could step into
guarantee the deposit take full control of the business.
Sell it off in pieces and wind the rest down.
This would be politically difficult, especially if Swiss
taxpayers were to take a hit, not to mention the embarrassment
of one of the country's biggest companies being brought down.
So, anyhow my suggestion for credit Suite, which I feel is a
good one is less banking, more rubber clogs.
It works for the Crocs people and it's the banking thing that
seems to keep getting Credit. Suisse Bubble.
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