$600 Billion: What Lehman Brothers held in assets when they crashed and took the economy with them. $2800 Billion: What Credit Suisse and Deutsche Bank control in AUM. 4.6x more. Credit Suisse is at a ‘Critical Moment’ now, says the CEO. What lies in store for the world?
The stocks of both banks have suffered an absolute rout so far. In the past year alone, their stocks have fallen by more than 40%!
Deutche Bank : $12.30 -> $7.40
Credit Suisse : $9.83 -> $3.92
However, most of the recent interest arose due to a story from ABC Australia, which reported ominously that “a major international investment bank is on the brink”. Although the reports didn’t specify any names, the rumor is that they are referring to Credit Suisse.
Credit Suisse’s credit default swaps (CDS) costs have hit the highest level since 2008! A CDS is essentially an insurance purchased against a potential default.
Even without any underlying issue, such a rumor can quickly become a self-fulfilling prophecy as panicking clients start withdrawing their money. Unfortunately, their CEO’s recent statements haven’t calmed investors’ nerves.
At the moment, not much is known about the reason behind Deutsche bank’s underperformance. Currently, they are trading at ~0.3x book value and concerns had been raised earlier about their exposure to the derivatives market.
Both Credit Suisse and Deutsche are the biggest banks in Switzerland and Germany respectively and have a history of more than 150 years. They are also considered to be G-SIB’s (Global Systemically Important Banks) making a bailout likely in case of any serious issues.
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