It’s been more than a decade since the financial crisis in 2007-2008 when Lehman Brothers, the fourth largest investment bank in the U.S., collapsed and filed bankruptcy. Close to 14 years later, Credit Suisse and Deutsche Bank, two of the world’s largest banks, are suffering from distressed valuations and the banks’ credit default insurance levels are approaching degrees not seen since 2008.
Credit Suisse and Deutsche Bank Valuations Have Dive-Bombed — Investors Discuss the Systemic Risk to the Global Economy
The first week of Octubre saw the global economy continue to look grim. Gas and energy prices are at record levels, inflation is high in many countries for the first time in 40 years and supply chains are broken. Equity markets and stock exchanges also have seen significant declines. Tense relations between Russia and China have increased.
Two of the world’s largest banks for investment are struggling to survive amid this bad economy. Credit Suisse Group AG, NYSE: CS and Deutsche Bank AG (NYSE : DB) trade at extreme low prices. This is a stark contrast to 2008’s financial crisis.
At the end of August, Deutsche Bank analyzed the issues tethered to Credit Suisse, and the bank’s analysts noted that there was a $4.1 billion gap that needs to be filled in order to combat the financial institution’s financial well-being. Furthermore, Credit Suisse’s credit default insurance (CDS) levels resemble the same CDS levels Lehman Brothers had just before the bank’s bankruptcy.
Credit Suisse CEO Ulrich Koerner recently explained that his company is facing a “critical moment” and he stressed that the Swiss-based financial institution has a “strong capital base and liquidity position.”
Large Investor Says Credit Suisse CDS Is Trading Like a ‘Lehman Moment,’ Wallstformainst CEO Says ‘Anyone Who Fully Trusts Credit Suisse’s accounting Also Believes in Unicorns and the Tooth Fairy’
Not everyone agrees with Koerner as a report from investing.com details that a “large investor that deals with Credit Suisse says the investment bank is a disaster, [and] CDS is trading like a ‘Lehman moment’ [is] about to hit.” The managing partner at Compcircle Gurmeet Chadha, however, doesnt think a major market anomaly will reveal itself.
“Since 2008, once a year Credit Suisse [and]Once in [two] years Deutsche bank is about to default,” Chadha tweeted. “In Every correction – this speculation starts coming. In my little experience- A black swan event never announces itself.”
Credit Suisse analysts have downgraded their stock to a Sell rating pic.twitter.com/SghqtoFnhS
— Dr. Parik Patel, BA, CFA, ACCA Esq. (@ParikPatelCFA) October 2, 2022
Chadha’s commentary has not put a cork on the speculation surrounding the two banks and many believe a disaster is imminent. “Credit Suisse is probably going bankrupt,” the Twitter account ‘Wall Street Silver’ toldHis 320,000 followers.
“The collapse in Credit Suisse’s share price is of great concern,” Wall Street Silver said. “From $14.90 in Feb 2021, to $3.90 currently. And with P/B=0.22, markets are saying it’s insolvent and probably bust.”
Credit Suisse, 4 key numbers
160b cash
Call Liabilities: 400b
Exposure to 900b leverage
40b Equity— Charlie Munger Fans (@CharlieMunger00) October 1, 2022
An analysis of the situation published on Seeking Alpha also notes that both Credit Suisse and Deutsche Bank are trading at distressed valuations and further says that Credit Suisse “will have to go through a painful restructure.” The Seeking Alpha author writes that “[Credit Suisse]Trades at 0.23x tangible books [and] Deutsche Bank is trading at 0.3x tangible book value.” However, the Seeking Alpha author says that Deutsche Bank is working through the storm via benefits from interest rates. According to the author, Deutsche Bank is trading at 0.3x tangible book value.” However, Seeking Alpha says that Deutsche Bank has been able to weather the storm with its benefits from interest rates.
Avoid these investments [Credit Suisse]Purchase [Deutsche Bank].
Investors believe that the two financial giants are facing a significant crisis and they don’t believe the statements made by the Credit Suisse CEO. Some have criticized the banks’ auditing process as they believe Credit Suisse and Deutsche Bank are up to their necks in debtLoans that are not in good standing.
“Tell me the real number amount of bad loans outstanding that Credit Suisse has to these hedge funds and family offices like Archegos,” the CEO of Wallstformainst Jason Burack tweetedIn August. “Because anyone who fully trusts their accounting also believes in unicorns and the tooth fairy.” At the time of writing, the term “Credit Suisse” is a very popular vertical trendOn Twitter, Sunday morning at 08:00 ET with 466,000 tweets.
Let us know your thoughts on the financial woes of Deutsche Bank and Credit Suisse. Please comment below to let us know your thoughts on this topic.
Image creditShutterstock. Pixabay. Wiki Commons. Editorial photo credit to Nataly Reinch. Rostislav Ageev
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