More than a decade has passed since Lehman Brothers, America’s fourth-largest investment bank, went bust in 2008 and declared bankruptcy. Nearly 14 years later, Credit Suisse and Deutsche Bank which are two of the largest investment banks in the United States, are still struggling with distressed valuations. The banks’ credit default insurance levels have reached levels not seen since 2008.
The world economy continued to look grim during the first week in October. Energy and gas prices reached new records, inflation in many nations is at its highest level in over 40 years, supply chains have fractured, equity markets have lost significant value and tensions between Russia and the West have risen.
Credit Suisse and Deutsche Bank Suffer bad Valuations which is a risk to global financial stability
Two of the world’s largest investment banks are struggling to survive amid this bad economy. Market data shows Credit Suisse Group AG (NYSE CS: DB) and Deutsche Bank AG(NYSE: DB: CS) trading at very low valuations, a trend that has been evident since 2008’s financial crisis.
Deutsche Bank reviewed the issues linked to Credit Suisse in August and found that there was a $4.1 Billion gap which needed to be filled to protect the financial institution’s financial health. Credit Suisse’s levels of credit default insurance (CDS), are similar to those that Lehman Brothers had before their bankruptcy.
Recently, Credit Suisse CEO Ulrich Koerner stated that his company faces a “critical moment” but stressed that the Swiss-based financial institution had a strong capital base and liquidity position.
Wallstformainst CEO Says Credit Suisse CDS Trading Like a “Lehman Moment”
Not everyone agrees with Koerner though. A report by investing.com states that a large investor who deals with Credit Suisse said that the bank was a disaster and that CDS was trading like a Lehman moment”.
Chadha tweeted, “Since 2008 once a year Credit Suisse and one in two years Deutsche Bank is about to default.” “In every correction, this speculation starts coming. My experience is that a black swan event does not announce itself.
Chadha’s comment has not stopped speculation about the banks from escalating and many believe that a catastrophe is on its way. Credit Suisse will probably go bankrupt,” the Twitter account Wall Street Silver’ stated to its 320,000 subscribers.
Wall Street Silver stated that “the collapse in Credit Suisse’s share price was of great concern.” “From $14.90 in February 2021 to $3.90 now. Markets are predicting it to be insolvent and likely bust.
Seeking Alpha published an analysis on the situation. It also noted that Credit Suisse and Deutsche Bank were trading at distressed valuations. The Seeking Alpha author further stated that Credit Suisse was trading at 0.23x tangible books and Deutsche Bank at 0.3x tangible books. However, Seeking Alpha claims that Deutsche Bank is navigating the storm using the benefits of interest rates.
Investors believe that the financial giants are in a crisis. However. Some criticize the banks’ auditing processes as they believe Credit Suisse is overloaded with bad loans and debt.
In August, Wallstformainst Jason Burack tweeted “Tell me how many bad loans Credit Suisse has to these family offices like Archegos.”
“Credit Suisse” is a popular vertical trend with 46,000 tweets on Sunday morning (ET).