Headlines about ‘alarm over CreditSuisse’ might be read as a sign of normality in financial news, rather than the reverse. The second-ranked Swiss bank (behind UBS) has slipped on so many banana skins in recent years that, as I wrote in February: ‘I sometimes wonder how and why it survives.’ As a recognised basket-case, its difficulties are not usually seen as harbingers of systemic trouble.
But in the Kwarteng-induced febrile mood of London’s markets, the question has to be asked. This is October, the devil’s favourite month for provoking crashes. Could Credit Suisse be the tornado on banking’s horizon?
Amid rumours of critical balance-sheet weakness, Credit Suisse’s shares have fallen 60 per cent this year. More recently, the price of its credit default swaps – a form of insurance against the bank failing to repay its bond debt – multiplied almost sixfold. Reports that the Bank of England was liaising with Swiss authorities to avert wider turbulence upped the unease. New-broom chief executive Ulrich Körner added unintended fuel by saying his bank is at ‘a critical moment’ as he prepares yet another strategic review to address running losses, in part by selling off underperforming assets.
‘How big is the capital hole at Credit Suisse?’ asks the FT, quoting pundits who think the answer is four billion Swiss francs. Körner retorts that his bank has ‘a strong capital and liquidity position’, while JPMorgan pronounces it ‘healthy’, with key ratios ‘well above requirements’. And that’s believed to be the case for most major European banks, after a decade of capital-building and stress-testing. Even with interest rates spiking, property markets wobbling and bankruptcies rising, the sector looks well braced for a difficult winter.
But should we worry that it might not be? As the investors who have hammered Credit Suisse move on to other targets such as Deutsche Bank, whose shares have also dropped, will negativity turn into self-fulfilling prophecy? Most chat on this theme is to be found on Twitter, the Reddit trading forums and sites such as Bitcoin.com