For the life of me, I cannot understand the market panic around Credit Suisse. Shares are down by another 10% and CDS (Credit Default Swaps) have screamed up to 355bps which suggests that the market thinks that there is a 23% chance of Bankruptcy (really?!).
This for a Bank which has a 13.5% Tier 1 Capital Ratio. Sure, it is lower than some other European Banks: Barclays (15.1%), HSBC (14.7%), UBS (15%), but definitely not in dangerous territory and better than some USA Banks: JPMorgan (13.1%) and Bank of America (12.1%).
Certainly, they have some problems at their Investment Bank which lost £1bln in Q2. Horrible I know, but hey, they are not the only one with a troublesome Investment Bank on their hands and they are planning to do something about it.
The only reason for the market reaction that anyone can offer is that the CEO, Ulrich Korner, created panic by suggesting in September of a possible capital increase to deal with costs of closing down the Investment Bank and then recently when he circulated a memo to staff reassuring them that the Bank is well capitalized. Seriously?
The market thinks that such a reassurance actually suggests the opposite – i.e why need to reassure when everything is ok? The saying about lunatics having taken over the asylum comes to mind.
Me thinks someone has shorted the shares and is making a bundle – but that’s just me.