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Amidst the plunging share price levels and growing Credit Default Swap (CDS), the firm is still maintaining the outlook that it got its business covered.
Swiss financial services giant and global investment banking giant Credit Suisse AG (SWX: CSGN) has unveiled its plans to sell its landmark hotel, the famous Savoy Hotel in Zurich’s financial district. This move has further stirred the speculations that Credit Suisse may not be as liquid as feared, further likely to place a strain on the bank’s share position.
As part of the longer plan to rebalance its financial position, Credit Suisse said it will be repurchasing its debt portfolio to cut the entire liability by a good margin. In a statement shared to announce the move, the bank said:
“The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices.”
Credit Suisse has been in the crosshairs of major scandals over time. The company has as much as a $5 billion exposure to Archegos, a major hedge fund that collapsed in March last year. The financial strain at the time unrattled the company and the firm’s management, particularly the Chief Executive Officer had to be changed.
The new CEO, Ulrich Koerner is trying to help the bank get back on its feet, and while he is doing a lot to restructure the company, he admitted that the firm is at a critical moment.
Amidst the plunging share price levels and growing Credit Default Swap (CDS), the firm is still maintaining the outlook that it got its business covered. Per the debt repurchase measure, Credit Suisse is looking at a cash tender offer relating to eight euro or sterling-denominated senior debt securities, and 12 US dollar-denominated securities. While the former is worth up to 1 billion euros ($980 million), the latter is worth up to $2 billion.
Credit Suisse Can’t Fuel a Lehman Brothers Moment
The global financial ecosystem has evolved through a series of scandals and downturns one of which is fueled by the Lehman Brothers investment banking firm responsible for the global financial crisis in 2008.
With the current distressed state of Credit Suisse, as well as other major banks whose CDS has also been growing lately, many are fearful that a Lehman Brothers situation may be building up. MSCI, an American finance company has allayed these fears, noting that a Lehman Brothers moment is far from the horizon on the basis that the slope of credit-spread curves has generally steepened, rather than inverting.
“Inversion of the curve would reflect investors’ short-term default concerns, and this was observed in 2008 across banks. Credit Suisse is the only major bank for which the curve has recently flattened,” MSCI Research Executive Directors Gergely Szalka and Thomas Verbraken noted. “All that to say, the market data suggests that a Lehman moment for European banks does not seem likely for the time being.”