Another Lehman Brothers? Credit Suisse shares down by record 12%, CEO puts up brave front

Credit Suisse Group AG's attempts to reassure investors about its financial stability backfired as the credit risk indicator for the global bank surged to a record high while its shares hit a new low.

There's talk about the bank going under like Lehman Brothers in the US, which was one of the events that precipitated the global financial crisis of 2007-08, but the Swiss bank's CEO put up a brave front.

According to ICE Data Services, the price of five-year default swaps of the bank is currently at an all-time high of roughly 293 basis points, up from about 55 points since the beginning of this year.

On Monday, the bank's shares fell by a record 12 per cent in Zurich, and this year alone, they have lost over 60 per cent, the greatest yearly decline in Suisse's record. Bloomberg reported that Ulrich Koerner, CEO, praised the bank's capital and liquidity levels, but admitted going through a "critical period."

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Furthermore, he informed that the company will release a new strategic plan on October 27. There is currently a 23 per centchance that the bank will default on its obligations in the next five years. Some clients had used the increase in the CDS this year to inquire about haggling rates and products.

Bloomberg reported that the institution is currently drafting proposals that could result in the reduction of thousands of jobs for several years. Even after selling some assets, analysts at KBW expect that the company could raise $4 billion in capital to cover any unforeseen restructuring initiatives and other costs.

Given that Credit Suisse's market value has decreased by approximately 9.5 billion in Swiss francs, any share for this would dilute the existing shareholders. In 2021, the market value was around $30 billion francs.

The firm's 13.5 per cent CET1 capital ratio as of June 30 fell in the centre of the anticipated range of 13 to 14 per cent. There are no current issues at Credit Suisse compared to its $7.2 million at Deutsche Bank, and the Swiss bank's core capital ratio of 13.5 per cent is higher than 10.5 per cent higher than six years ago.

The bank is currently looking for deals to sell its trading division for specialised products and is examining the sale of its wealth in Latin America and Brazil.

(With inputs from agencies)

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