Record high inflation + the Fed’s rate-hike-a-palooza + Credit Suisse’s less-than-stellar performance this year = investors on edge.
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Swiss bank Credit Suisse was no angel thanks to numerous missteps and a high-profile corporate spying scandal, but the internet decided this weekend to brand the firm with a big scarlet D: The bank’s credit default swaps (CDS)—a security that reflects how much default risk the market sees—surged yesterday after rumors spread throughout the trading floor that the bank was short on cash.
Now, social media is ablaze with hot takes that suggest we’re looking at Lehman Brothers 2.0.
Don’t start spiraling tho. Most experts have pointed out that yes, Credit Suisse’s rapid CDS jump does mean investors think the firm has a higher probability of defaulting on its loans. But if you zoom out a little, that probability is still very low.
How did we get here? Record high inflation + the Fed’s rate-hike-a-palooza + Credit Suisse’s less-than-stellar performance this year = investors on edge. So when execs tried to do damage control by asserting that “everything’s all good over here!” it just made everyone freak out more.
Looking ahead…the bank is expected to make a restructuring announcement on October 27 that will address its plans for coming back from epic blunders like the $5.5 billion loss it sustained when client Archegos Capital collapsed last year.—MM
