Don’t panic: Credit Suisse is not the next Lehman Brothers

Junior bankers and traders who are already at Credit Suisse or who have offers to join Credit Suisse next year can exit their secure spaces. Contrary to reports over the weekend, the bank is unlikely to fail. So say some of the most knowledgeable people in the industry, many of whom actually witnessed the failure of several banks in 2008.

Where does the rumor of the impending demise of Credit Suisse come from? Twitter seems to hold the smoking gun. people like Spencer Jakab from the Wall Street Journal’s Head on the Street column, and various pundits posted tweets like the ones below, following last Friday’s memo from Credit Suisse’s (last) CEO, Ulrich Koerner, advising staff that ” the bank’s daily stock market price performance should not be confused with its “strong capital base and liquidity position”.

According to the Financial Times, Credit Suisse spent the weekend reassuring investors that all was well. Some are convinced. Credit Suisse may be “Europe’s worst big bank” but it’s not about to go under, one said.

Nonetheless, some Credit Suisse juniors seem to be panicking. A thread on the Wall Street Oasis forum website is tinged with hysteria about rescinded job postings and the danger of getting “screwed in a crisis.” – “It’s true that it’s a little scary,” says a first-year CS.

Fortunately, Credit Suisse itself is not the only one to reassure. Boaz Weinstein, the CDS king of the financial crisis and founder of Saba Capital Management, also thinks the Credit-Suisse-is-Lehman narrative is exaggerated and said so on Twitter.

The “scaremongering” around Credit Suisse is “crass,” Weinstein said in another tweet. Others, including some journalists, seem to share this view: The FT’s Tom Braithwaite suggested that Spencer Jakab might want to delete his Tweet. He did not do it.

The fundamental difference between Lehman in 2008 and Credit Suisse in 2022 translates into another Twitter comment observing that critics of Credit Suisse “confuse an American investment bank whose CEO had no friends among the authorities with a Swiss banking behemoth plugged into a country that prides itself on the security of its institutions… and its banks”.

Even some of Credit Suisse’s less enthusiastic ex-traders and MDs of late agree with the verdict that all is well. “It’s BS,” says one of the panicked over the weekend. “Credit Suisse has reduced its risk and now has one of the safest balance sheets in the market. It has been under intense scrutiny for two years and claims it is the next Lehman is complete nonsense. from people who have no understanding of financial analysis.”

Credit Suisse may not be a good company, but that doesn’t mean it’s also very risky, he adds. “The market is volatile and Credit Suisse is unpopular, but they don’t need as much capital and their CDS spreads are half the level of US banks in 2012.”

Another former chief executive recently pointed to Credit Suisse’s Thursday update for fixed income investors showing it exceeds capital requirements. “The credit situation is good, but Credit Suisse probably still needs to raise capital quickly to send a strong message to investors,” he said. One way for the bank to achieve this is to sell its securitization business as promised. Deutsche Bank’s Benjamin Goy calculated last month that Credit Suisse needed to raise $4.1 billion and said the securitized products business could raise nearly two-thirds of that. In a note last week, UBS analysts said even a partial sale could boost capital ratios by $1 billion.

While Credit Suisse may not be “the next Lehman”, it could still prove to be a slightly unstable employer, especially if you’re in investment banking. At the very least, events this weekend will likely make the bank more concerned with capital conservation and less inclined to back a large, capital-hungry investment bank. The knives that were sharp for the upcoming strategy announcement might now be even sharper. And if, for whatever reason, the Swiss central bank gets involved, the investment bank will probably be the first to go: “They would completely change banks and focus on Swiss universal banking and private banking / management fortune,” says a recently ex-MD.

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