It¡¯s been more than 14 years since the financial crisis of 2007-2008 led to the collapse and bankruptcy of one of the largest investment banks in the U.S., Lehman Brothers.?
And now, a similar collapse doesn't seem too far away for?Credit Suisse and Deutsche Bank, two of the world¡¯s largest banks.?Amid an economic slowdown,?recession?fears and a broader market sell-off,?they both are suffering from distressed valuations and the banks¡¯ credit default insurance levels are reportedly approaching levels not seen since the crisis of 2008.
Switzerland¡¯s second-biggest bank Credit Suisse¡¯s market capitalization has dropped nearly 70% to around 10 billion Swiss francs, meaning any share sale would be highly dilutive to longtime holders. The market value was above 30 billion francs as recently as March 2021, as per Bloomberg. Its shares are down over 27% over the past month, and plunged about 60% since the beginning of this year. Last month, it came to light that Credit Suisse is considering cutting around 5,000 jobs as part of its cost reduction drive.
On the other hand, Germany-based Deutsche Bank¡¯s market capitalization has plunged more than 50% since February 2022. On 5th Feb, its valuation was $33 billion, compared to nearly $15.2 billion as of today, as per data on Companiesmarketcap. Its shares are down nearly 10% over the past month, and over 34% down since the beginning of this year.
Amidst the growing concerns, Credit Suisse¡¯s new CEO? Ulrich Koerner has asked investors for less than 100 days to deliver a new turnaround strategy. But with each passing day in the turbulent markets, 100 days are seeming like a long time.
The cost of insuring Credit Suisse¡¯s bonds against default climbed about 15% last week to levels not seen since 2009, as per the Bloomberg report. Last Friday, Credit Suisse¡¯s CEO reassured staff that the bank has a ¡°strong capital base and liquidity position¡± and told employees that he will be sending them a regular updates until the firm announces a new strategic plan on October 27th, which is still more than three weeks away.
Koerner, who was named CEO in late July, has had to deal with market speculation, banker exits and capital doubts as he seeks to set a path forward for the troubled Swiss bank. The lender is currently finalizing plans that will likely see sweeping changes to its investment bank and may include cutting thousands of jobs over a number of years.
CEO Koerner¡¯s memo was the second straight official letter on a Friday, as speculation over the bank¡¯s future increases. Analysts at KBW (US-based investment banking firm) reportedly estimated that the firm may need to raise 4 billion Swiss francs ($4 billion) of capital even after selling some assets to fund any restructuring, growth efforts and any unknowns.?
The five-year credit default swaps price of about 250 basis points is up from about 55 basis points at the start of 2021 and is near their highest on record. While these levels are still far from distressed and are part of a broad market selloff, they signify deteriorating perceptions of creditworthiness for the scandal-hit bank in the current environment, as per the report.
Last week, Credit Suisse reportedly said it¡¯s working on possible asset and business sales as part of its strategic plan which will be unveiled at the end of October. The bank is exploring deals to sell its securitized products trading unit, is weighing the sale of its Latin American wealth management operations excluding Brazil, and is considering reviving the First Boston brand name, Bloomberg has reported.
Also Read:?How The?Stock Market Crash?Of 1929 Led To World War II
Amidst the concerns over the German bank¡¯s credit health, its CEO Christian Sewing has said ¡°India will be the 'shining star' of the global economy that faces a decade of volatility amid war, inflation and supply chain disruptions, although New Delhi could make the implementation of projects easier to attract more overseas investment¡±, as per ET report.
Large pockets of the tightly knit global economy will likely have to go through a round of pain as central banks drain liquidity and raise interest rates to fight inflation because not doing so could damage economies beyond repair, he said, adding ¡°I've seen India developing over time - a development this country can be proud of," CEO Sewing said in an exclusive interaction. "A lot of other countries, in particular from Europe, are looking at India and seeing a real opportunity. There's always room for further improvement. But if I look around the world, India is a shining star. We want to invest and grow here. It's a vibrant market."
Also Read:?India?Has Zero Probability Of Slipping Into?Recession, Reveals Survey
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