Robert Steinadler, 8 months ago

Is Credit Suisse the next Lehman, or is just one big Nothingburger?

Lehman went down in 2008 and was one of the reasons why Bitcoin was born in the first place. Banks ruined the lives of people and at the end of the day all the higher-ups and managers got in return were bonuses. This was more than an unsatisfying situation and many people felt that it was time for a change and that banks need to be checked so that they never could pose a systemic risk again. Fast forward, it is the year 2022 and another bank might face the same or even a worse fate than Lehman did during the banking crisis 14 years ago.

Is Credit Suisse facing a total catastrophe or is this just a lot of noise?

WallStreetBets is all over Credit Suisse

Yesterday, the stock price for Credit Suisse fell by 11 % after an Australian journalist tweeted that credible sources told him that a big investment bank is about to collapse. The social media community WallStreetBets attributed this to Credit Suisse and ever since Reddit and Twitter is all over the topic and how the bank is going down with a big bang. The tweet however was deleted in the meantime.

One fact that seems to support that claim is that the credit default swaps (CDS) for Credit Suisse are absurdly expensive. Many analysts read this as the first sign that the bank is about to fall, but there are other data points that should be taken into account, and they show a different picture.

For instance, the tier 1 capital ratio in Q2 2022 was at 13,5% which seems to be more than healthy given the fact that it was supposed to meet a target between 13 % and 14 %.

Is the crash going to happen or not?

This is hard to predict, because there is a lot of disparity between what is actually going on and how people perceive things. Credit Suisse is in fact facing difficult times and at the end of October, the bank is going to publish its plans to restructure parts of the business that are doing not well. It is yet unclear how this going to play out, but many observers expect that Credit Suisse will withdraw from the investment banking sector, which was not very successful in the past few years.

At the end of last month, the European Systemic Risk Board issued a warning that the banking sector could indeed face problems, given the fact that a recession is a possible outcome for Europe. Banks could face heavy losses from defaults on credits, which may or may not put some of them at high risk.

While WSB is still dreaming about the big short, the stock price of Credit Suisse recovered yesterday in a heartbeat. In conclusion, the chances are high that the banking sector is going through a very difficult time and many people are betting that Credit Suisse is going to win the race and hit the wall first. This is reflected by the market sentiment and sky-high CDS, but despite this bad outlook there is still a good chance that Credit Suisse is going to make it, because vital parts of the bank are doing fine so far.

What would a crash mean for crypto? 

We can only speculate since a systemic crash would be unseen for crypto. One outcome could be that people distrust banks even more and turn to crypto as an alternative. But if a crash leads us into a new and harsh recession, people may want to prioritize paying their bills and keeping their jobs over investing. One thing is clear: some people are already looking to profit over the Credit Suisse rumours in the most bizarre way. There is a contract for “Credit Suisse Inu” on Uniswap. And while we normally don’t give financial advice, even Coinmarketcap shows a big red warning for this token.  

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