Credit Suisse is even riskier than the Greek crisis bank

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Stock market storm for Credit Suisse. After Monday’s crash, the big bank has to lose its feathers again today. Switzerland’s second largest bank has released its annual report. This indicates that customers continue to withdraw their funds from CS. The bank writes that the outflow of money cannot be stopped. The share price plummeted.

The only bullish trend in Credit Suisse right now is the price of credit default swaps (CDS), a financial instrument that regularly chills the backbone of the financial industry when it rises sharply. On Monday and Tuesday, the price of a five-year CDS skyrocketed to 480 basis points. A new negative record! For comparison: at the start of 2022 it was still 57 basis points.

Investors fear CS’ bankruptcy

A high CDS price does not bode well for Credit Suisse. With a credit default swap, creditors insure themselves against the possible bankruptcy of a debtor. You can picture it this way: A lender lends money to Credit Suisse, but wants to protect itself against possible default.

The lender then transfers the risk of default to a third party – that is, it is compensated in the event of actual bankruptcy. For this, the lender has to pay them a premium on an ongoing basis.

Like the price of a share, this premium is determined by supply and demand in Credit Suisse CDS. So if the price goes up, it means nothing more than CS creditors preparing for possible bankruptcy.

Swiss CS customers need not fear

It is noteworthy: other well-known crisis banks, such as the Greek Eurobank Ergasias, are in a much better position than CS. Eurobank Ergasis CDS price is currently at 297 points.

However, Credit Suisse customers in Switzerland can still sleep peacefully. The Swiss business of CS is systematically important. According to Esisuisse, the institution responsible for deposit insurance, Credit Suisse has taken precautions and prepared contingency plans to ensure that the domestic deposit business can run smoothly even if you run into trouble.

There is also Swiss deposit insurance: assets up to 100,000 francs are protected. And Credit Suisse’s Core Equity ratio rose slightly to 14.1 percent again in the fourth quarter – but slightly below the industry average.

Source :Blick