Tag Archives: Credit Suisse

FDIC Insurance, Credit Suisse and the Day the Fed Killed Europe, by Tom Luongo

Posted on March 24, 2023 | Leave a comment

A contrary prediction from Tom Luongo: the Fed will keep raising rates. From Luongo at tomluongo.me:

So, Credit Suisse is no more. Good riddance? I think this is an open question given the very complicated landscape of the global banking system today. By the time I’m done here I think you’ll have an answer that no one, including me, was expecting.

There’s a lot to cover, so let’s start at the beginning.

In the wake of the “three-fer” take out of Silvergate, Silicon Valley and Signature banks by the ‘market’ I think we have a pretty clear picture of what’s really going on.

This wasn’t a ‘market’ operation. It was a Fed/NY Boys operation and a very successful one.

The Fed (and only the Fed through its proxies) had the motive, means and opportunity to perform the hit job. I wrote a big post for my patrons on March 11th (now made public) going over this.

These Three S’s were all operating as offshore Shadow banks. As Phil Gibson pointed out on his most recent Substack article:

SVB ultimately runs its funding the way Startup funding does:  

  • A person with $1b comes in and puts $1b into SVB. They go out to a startup and sign a term sheet. This sheet says that the startup will deposit its money in SVB.
  • Then SVB goes out and loans that $1b out to another VC. Who ‘invests’ it in another startup, who’s term sheet says they will keep their deposits in SVB.
  • So now SVB has take $1b dollars and made it $2b dollars. Without any fed regulation or intervention.

To which I would add the deposits coming back in were then invested in long-dated US Treasuries and marked as ‘hold to maturity.’ This meant they couldn’t be sold. This was a good deal as long as the short-end of the yield curve stayed at the zero-bound, or at least below that of the long-end.

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UBS To Buy CS For $3 Billion As AT1 Bonds Get Wiped Out In Record Bail-In; Swiss Govt Grants CHF9BN Guarantee; SNB Offers $100 Billion Liquidity Backstop, by Tyler Durden

Posted on March 20, 2023 | Leave a comment

All the gory details. Credit Suisse is”lucky” its failure is at the leading edge. Long before this is over all the king’s horses and all the king’s men won’t be able to put busted banks back together again. From Tyler Durden at zerohedge.com:

Update (1500ET): We finally have a deal, and what was at first a CHF1 BN acquisition priceof Credit Suisse by UBS, which then rose to CHF 2 BN, has now cranked up one final time to CHF 3BN (US$3.25 billion), or 0.76 per share, specifically shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. As part of the deal, the Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over, i.e., this is a taxpayer-backed bailout.

More importantly, however, the bank’s entire AT1 tranche – some CHF16BN of Additioanal Tier 1 (AT1) bonds, a $275BN market – will be bailed in and written down to zero, to wit: “FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.“

This wipe out, pardon, bail-in is the biggest loss yet for Europe’s $275 billion AT1 market, far eclipsing the approximately €1.35 billion loss suffered by junior bondholders of Spanish lender Banco Popular SA back in 2017, when it was absorbed by Banco Santander SA to avoid a collapse.

AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail. They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business.

As Bloomberg notes, investors had been concerned that a so-called bail-in would result in the AT1s being written down, while senior debt issued by the holding company, Credit Suisse would be converted into equity for the bank.

In retrospect, they were right to be worried… meanwhile equityholders get CHF3 billion; we are confident Swiss pensions will be delighted they are getting a doughnut while the Saudis get a not immaterial recovery.

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Bailout Arrives: Credit Suisse To Borrow $54BN From SNB To “Pre-emptively Strengthen Liquidity”, by Tyler Durden

Posted on March 16, 2023 | 1 comment

The EU banking system is in worse shape than the U.S. banking system and Credit Suisse is the EU poster child. For the disturbing details, put Alasdair Macleod in the SLL search function and start reading. From Tyler Durden at zerohedge.com:

Summary: 

  • Saudis fold – refuse to throw any more money at Credit Suisse
  • Credit Suisse stock hits record low
  • Credit Suisse 1Y CDS explodes as counterparty risk hedging soars
  • Credit Suisse execs urged a “show of confidence” from the Swiss National Bank
  • ECB quantifying exposures to Credit Suisse
  • US Treasury monitoring situation, talking with other regulators
  • Fed working with UST to quantify exposures
  • One major govt is pressuring Swiss to intervene
  • Systemic risk threat spreads globally
  • Swiss authorities seeking to stabilize bank
  • Swiss National Bank and Finma issue statement of support
  • Credit Suisse said it’s planning to borrow from the Swiss National Bank up to CHF50 billion under a covered loan facility.

Update (21:00ET): And so, the “bailout” arrives just a few hours before the Europe open, Credit Suisse said it’s planning to borrow from the Swiss National Bank up to CHF50 billion ($54 billion) under a covered loan facility which is “fully collateralized by high quality assets”. It wasn’t immediately clear what high quality assets CS has left to pledge but in a time of BTFP, we are confident they found something. 

The bank also announced  offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to about CHF3 billion, which will help the bank pick up a few pennies in bond discount, even as it faces tens of billions in deposit flight.

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Banking crisis — the Great Unwind, by Alasdair Macleod

Posted on October 14, 2022 | Leave a comment

Europe will be the epicenter of the banking crisis, which has already begun and which will engulf the world. From Alasdair Macleod at goldmoney.com:

There is a growing feeling in markets that a financial crisis of some sort is now on the cards. Credit Suisse’s very public struggles to refinance itself is proving to be a wake-up call for markets, alerting investors to the parlous state of global banking.

This article identifies the principal elements leading us into a global financial crisis. Behind it all is the threat from a new trend of rising interest rates, and the natural desire of commercial banks everywhere to reduce their exposure to falling financial asset values both on their balance sheets and held as loan collateral. And there are specific problems areas, which we can identify:

  • It should be noted that the phenomenal growth of OTC derivatives and regulated futures has been against a background of generally declining interest rates since the mid-eighties. That trend is now reversing, so we must expect the $600 trillion of global OTC derivatives and a further $100 trillion of futures to contract as banks reduce their derivative exposure. In the last two weeks, we have seen the consequences for the gilt market in London, warning us of other problem areas to come.
  • Commercial banks are over-leveraged, with notable weak spots in the Eurozone, Japan, and the UK. It will be something of a miracle if banks in these jurisdictions manage to survive contracting bank credit and derivative blow-ups. If they are not prevented, even the better capitalised American banks might not be safe.
  • Central banks are mandated to rescue the financial system in troubled times. However, we find that the ECB and its entire euro system of national central banks, the Bank of Japan, and the US Fed are all deeply in negative equity and in no condition to underwrite the financial system in this rising interest rate environment. 

The Credit Suisse wake-up call

In the last fortnight, it has become obvious that Credit Suisse, one of Switzerland’s two major banking institutions, faces a radical restructuring. That’s probably a polite way of saying the bank needs rescuing.

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Credit Suisse Shares Hit Record Low, CDS Spike To Record High After CEO Letter Backfires, by Tyler Durden

Posted on October 3, 2022 | Leave a comment

The European banking system is a Jenga tower. Credit Suisse mights as well be the block whose removal sets the whole tower tumbling. From Tyler Durden at zerohedge.com:

Update (0800ET): Traders have woken up this morning to more systemic fragility as Credit Suisse debt and equity is dumped in an unceremonious rejection of the CEO’s letter of reassurance over the weekend.

Who could have seen that coming?

CS stock is down over 5% in pre-market trading (ADRs) to a new record low…

And CS credit risk has spiked to record highs this morning, topping 280bps at one point – basically disallowing the company from any investment banking business. This is higher than the bank’s credit risk traded at the peak of the Lehman crisis…

While the credit default swap levels are still far from distressed and are part of a broad market selloff, they signify deteriorating perceptions of creditworthiness for the scandal-hit bank in the current environment. There is now a roughly 23% chance the bank defaults on its bonds within 5 years.

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And Now A Liquidity Crunch: Credit Suisse Halts Redemptions From Renaissance Feeder Fund, by Tyler Durden

Posted on May 29, 2021 | Leave a comment

It’s smart to keep your eyes on situations like this. Financial crashes often start with one institution’s problems, which are “contained” until they’re not. From Tyler Durden at zerohedge.com:

Once upon a time, we couldn’t go an hour without some dire news involving Deutsche Bank (and its tens of trillions of gross notional derivatives). Now, it’s Credit Suisse’s turn.

In what was at least the third flashing-red headline for the day referencing the scandal-plagued Swiss Bank, moments ago Bloomberg reported that Credit Suisse, still humiliated from the billions it lost on Archegos and Greensill and countless subsequent banker terminations and defections, has temporarily barred clients from pulling their cash from a feeder fund that that was sold as an investment option for rich clients at the bank’s wealth arm, and which invests with Renaissance Technologies “after the strategy tanked and investors rushed to exit.”

To be sure, Credit Suisse has every right to impose this gate: according to Bloomberg, the Swiss bank invoked a hold back clause, after assets in the CS Renaissance Alternative Access Fund slumped to about $250 million this month from approximately $700 million at the start of 2020. While investors are expected to receive 95% of their redemption requests after two months, the remaining 5% is expected to be paid out in January, after the fund’s year-end audit, the people said. Hold back clauses are a standard part of offer documents at some U.S. based hedge funds.

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Con of the Week: Greensill Capital, by Matt Taibbi

Posted on May 20, 2021 | Leave a comment

Taibbi warns of fortunes generated from low margin businesses. Remember the warning if you’re thinking of investing in companies promising wondrous profits from low margin businesses like taxi rides and restaurant deliveries. From Taibbi at taibbi.substack.com:

When the face of a traditionally low-margin business starts collecting private jets, it’s time to head for the exits

For an explanation of the “Con of the Week” feature, click here.

Scrooge never painted out Old Marley’s name. There it stood, years afterwards, above the warehouse door: Scrooge and Marley…

Oh! but he was a tight-fisted hand at the grindstone, Scrooge! a squeezing, wrenching, grasping, scraping, clutching, covetous old sinner! Hard and sharp as flint, from which no steel had ever struck out generous fire; secret, and self-contained, and solitary as an oyster.

Charles Dickens never quite explained the business of Scrooge and Marley in A Christmas Carol. We knew old Ebeneezer was familiar with the fellows at the “‘Change” (the stock exchange), spent time in a “counting-house,” and was owed money all over town. One of the few things that made him happy was the passage of time, for debts to him — marked “three days after sight of this First of Exchange pay to Mr. Ebenezer Scrooge” — would become mere worthless securities, “if there were no days to count by.”

One theory is “Scrooge and Marley” were engaged in an age-old business called “supply chain financing.” The concept is simple. A supplier sells an order to a buyer. Rather than wait for the buyer to pay, the supplier accepts immediate payment with a slight discount from the supply chain financier, who in turn later collects the full amount from the buyer.

Scrooge once would have been a perfect fit as a leading man for Supply Chain Financing. It’s “blocking and tackling” finance work, a simple, unsexy living, best left in the hands of one who holds pennies in a vice-grip. If you’re not the type to bring a book of debts home for pleasure-reading, you wouldn’t prosper in this profession.

That was consensus, until Lex Greensill came along.

Lex Greensill testifying before the British Treasury Committee

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Archegos & Credit Suisse – Tip of the Iceberg, by Egon von Greyerz

Posted on April 9, 2021 | Leave a comment

The old saying is that there’s never just one cockroach, and in a highly leveraged and interconnected global financial system, there’s never just one blowup. From Egon von Greyerz at goldswitzerland.com:

Bill Hwang, the founder of the hedge fund Archegos that just lost $30 billion, probably didn’t realise when he named his company that it was predestined for big things.

Archegos is a Greek word which means leader or one who leads so that others may follow.

ARCHEGOS THE FIRST OF MANY TO COME

This, until a few days ago, unknown hedge fund is a trailblazer for what will happen to the $1.5+ quadrillion derivatives market. I have warned about the derivatives bubble for years. Archegos has just lit the fuse and soon this whole market will explode.

I know that technically Archegos was a Family Office for favourable regulatory reasons. But for all intents and purposes I consider it a hedge fund.

Warren Buffett called derivatives financial weapons of mass destruction and he is absolutely right.

Greedy bankers have now built derivatives to a self-destructive nuclear weapon. Archegos shows the world that an unknown smaller hedge fund can get credit lines of $30 billion or more that quickly leads to contagion and uncontrollable losses.

And when the hedge fund’s bets go wrong, not only do the investors lose all their money, also the banks which have recklessly financed Archegos’ massively leveraged speculation will lose around $10 billion of their shareholders’ funds.

It obviously will not affect the bankers’ bonuses which will only be reduced when the bank  has gone bust. Remember the Lehman crisis in 2008. Without a massive rescue package by central banks, Morgan Stanley, Goldman Sachs, JP Morgan etc would have gone under. And still the bonuses that year in these banks were the same as the previous year.

Absolutely scandalous and the very worst side of capitalism. But as Gordon Gekko said in the film Wall Street – Greed is Good! Well when it all finishes, it might not be as good as they think.

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Fallout from Greensill Collapse Splatters British Government, As Taxpayers Face Big Losses, by Nick Corbishley

Posted on April 7, 2021 | Leave a comment

If you’re worried that government-connected people will face civil or criminal liabilities, or at least some embarrassment, rest assured, this will all be swept under the rug and losses borne by the taxpayers. From Nick Corbishley at nakedcapitalism.com:

Downing Street’s dodgy dealings with Citigroup and Greensill show just how far the British government is willing to go to line the pockets of banks and other financial firms while bleeding taxpayers dry. 

The collapse of UK-based supply chain finance firm Greensill Capital continues to reverberate. In Germany the private banking association has paid out around €2.7 billion to more than 20,500 Greensill Bank customers as part of its deposit guarantee scheme after the bank collapsed in early March. But the deposits of institutional investors such as other financial institutions, investment firms, and local authorities are not covered. Fifty municipalities are believed to be nursing losses of at least €500 million.

Greensill’s biggest source of funds, Credit Suisse, has seen its share price plunge by almost a quarter. This is due not only to the fallout from Greensill’s collapse but also the impact of losses at its prime brokerage division caused by the stricken U.S. hedge fund Archegos, which are expected to reach €4 billion. The lender has warned of “considerable uncertainty” regarding the valuation of its supply chain finance fund. More than $5 billion of the roughly $10 billion invested in the fund remains outstanding.

Credit Suisse had assured clients in marketing documents that the debt in the supply chain fund was “low risk”. In one factsheet, it also said: “The underlying credit risk of the notes is fully insured by highly rated insurance companies.” At the beginning of March, that turned out not to be true. Some clients whose money remains trapped in the fund have threatened to sue.

Greensill’s biggest client, Anglo-Indian steel magnate Sanjeev Gupta, is on the verge of bankruptcy. Gupta’s GFG Alliance reportedly owes Greensill more than €3 billion. It began defaulting on its obligations after Greensill stopped lending to the group at the beginning of March. At the end of March Gupta requested a £170 million emergency loan from the UK government, which was duly rejected. Greensill’s administrator, Grant Thornton, has been unable to verify invoices underpinning some of the loans to Gupta. Companies listed on the documents denied ever having done business with the metals magnate.

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Archegos Implosion is a Sign of Massive Stock Market Leverage that Stays Hidden until it Blows Up and Hits the Banks, by Wolf Richter

Posted on March 30, 2021 | Leave a comment

There are at least $1 quadrillion (1000 trillions) worth of derivatives out there, most designed to amplify leverage. Nobody on the planet has any idea what all the risks are, what all the exposures are, or what will happen to the financial system if they start blowing up. From Wolf Richter at wolfstreet.com:

Banks, as prime brokers and counterparties to the hedge fund, are eating multi-billion-dollar losses as they try to get out of these secretive stock derivative positions.

The implosion of an undisclosed hedge fund, now widely reported to be Archegos Capital Management, is hitting the stocks of banks that served as prime brokers to the fund. The highly leveraged derivative positions, based on stocks, had blown up spectacularly. Banks get into these risky leveraged deals because they generate enormous amounts of profit – until they blow up and banks get hit as counterparties.

Credit Suisse [CS] is down 13% at the moment in US trading after it warned this morning that “a significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks,” and that it and “a number of other banks are in the process of exiting these positions,” and that the loss resulting from this exit “could be highly significant and material to our first quarter results.” The bank deemed it “premature to quantify” the loss.

Nomura Holdings [NMR] is down 14% at the moment in US trading after it warned this morning that “an event occurred that could subject one of its US subsidiaries to a significant loss arising from transactions with a US client.” It estimated the loss from this one client at “approximately $2 billion, based on market prices as of March 26.”

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