More than a decade has passed since the financial crisis of 2007-2008, when Lehman Brothers, the fourth largest investment bank in the United States, failed and filed for bankruptcy. Nearly 14 years later, Credit Suisse and Deutsche Bank, two of the world’s largest banks, are struggling with painful valuations and bank credit default insurance levels are approaching levels not seen since 2008.
Credit Suisse and Deutsche Bank valuations are plummeting – investors are debating systemic risks to the global economy
In the first week of October, the global economy remains bleak as energy and gas prices hit record highs, inflation in many countries is the highest in 40 years, supply chains are fractured, stock markets have fallen sharply, and tensions between the West and Russia are rising.
In this nasty economy, two major investment banks are slumping from painful valuations. Market datashows that Credit Suisse Group AG (NYSE: CS) and Deutsche Bank AG (NYSE: DB) have been trading at very low values since the 2008 financial crisis.
When Deutsche Bank analyzed stocks tied to Credit Suisse at the end of August, the bank’s analysts noted a gap of$4.1 billion. They noted that there was a $4.1 billion gapthat needed to be filled to counteract the financial health of the institution. They also noted that Credit Suisse’s level of credit default insurance (CDS) is the same as the level of CDS just prior to Lehman Brothers’ bankruptcy.
Credit Suisse CEO Ulrich Kellner recentlyexplained that the company is facing a “critical moment”and stressed that the Swiss-based financial institution has a “strong capital base and liquidity position.”
A large investor said Credit Suisse’s CDS are trading like a “Lehman moment,” and CEO Wallstformainst said, “People who fully trust Credit Suisse’s accounting also believe in unicorns and the tooth fairy ” and said
A report on investing.com details that “large investors who do business with Credit Suisse say the investment bank sucks and CDS are trading like a ‘Lehman moment’ is about to come,” and not everyone agrees with Kuhlner Not everyone agrees; Gurmeet Chadha, managing partner of Compcircle, however, does not believe that a major market anomaly is evident.
“Since 2008, once a year Credit Suisse and once every two years Deutsche Bank is about to default,” Chadha tweeted. “With every correction – this speculation will keep coming. In my little experience – Black Swan events never announce themselves.
Credit Suisse analysts downgrade their shares to sell designation pic.twitter.com/SghqtoFnhS
– Dr. Parik Patel, BA, CFA, ACCA Esq. . 10/02/2022
Chadha’s commentary does not plug the speculation surrounding the two banks and many believe disaster is imminent. Credit Suisse will probably go bankrupt,” the Twitter account “Wall Street Silver”told its 320,000 followers
“The collapse of Credit Suisse’s stock price is a major concern,” Wall Street Silver said.” It was $14.90 in February 2021 and is now $3.90. And at P/B = 0.22, the market is saying it is insolvent and will probably collapse.”
Credit Suisse, four key numbers.
400b at-call debt
900b leveraged exposure 40b equity
Ananalysisof the situation published on Seeking Alpha also noted that both Credit Suisse and Deutsche Bank are trading at dismal valuations Pointing out that, furthermore, Credit Suisse “will have to go through a painful restructuring,” the Seeking Alpha authors note that “[Credit Suisse] is trading at 0.23x tangible book [and] Deutsche Bank is trading at 0.3x tangible book value,” he writes. However, the author of Seeking Alpha states that Deutsche Bank is weathering the storm through profits from interest rates. The author adds
investors should avoid [Credit Suisse] and buy [Deutsche Bank].
Investors believe the two financial giants are facing a serious crisis, and say they don’t believe Credit Suisse’s CEO. Some believe Credit Suisse and Deutsche Bank are neck-deep in debtand bad loans and criticize the banks’ auditing process.
“Please tell me the real number of bad loans Credit Suisse has to hedge funds and family offices like Archegos,” Wallstformainst CEO Jason Blacktweeted in August.” Because anyone who trusts their accounting completely also believes in unicorns and the tooth fairy.” As of this writing, the term “Credit Suisse” is a very popular vertical trendwith 46,000 tweets on Twitter on Sunday mornings (ET)
Image credit: Shutterstock, Pixabay, Wiki Commons, Editorial photo credit: Nataly Reinch and Rostislav Ageev