There is like a pebble in the shoe. Little reassuring signs appeared on the side of Credit Suisse following the tremors which agitated the financial markets last month. The big bank has to face the distrust of financiers reluctant to buy its loans. “Investors see in the bond markets that there are risks to their balance sheet,” said Anton Sussland, an investment advisor in Geneva.
The downward trend in the price of Credit Suisse bonds is a reflection of these concerns. This has a direct consequence. The bank has to pay more to attract cash. While it could still borrow at the beginning of March at a slightly negative rate, it must now pay 1.67% to raise money at 10 years. Clearly, yields are tightening on its bonds, while the Confederation’s rates remain negative. “Credit Suisse must now pay 2% more than the Confederation to borrow, against a difference of only 0.3% last month,” explains the advisor.
Oxygen tank
This is astonishing at a time when the SNB is opening the liquidity tap to banks and when the Federal Council is easing the rules on capital for mortgage loans. “This measure increases the room for maneuver available to banks for granting loans,” the government writes. But this oxygen balloon did not necessarily reassure investors.
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Credit Suisse’s position also seems difficult compared to that of other institutions. Risk gauge, the credit spread on its bonds, ie the cost of contracting insurance on these bonds, has risen sharply in recent times (see graph). Today it peaks at almost 140 basis points, close to that of Italian banks and Deutsche Bank.
We know that the balance sheets of establishments on the Peninsula are full of subprime loans, while the German giant has been in a bad financial situation for a long time, haunted by the ghosts of the financial crisis of 2008. “The level of the credit spread is worrying” , sighs a large investor, wishing to remain anonymous.
What can fuel these fears? Some fear that Credit Suisse will be too exposed to leveraged financial instruments in the United States. This could be linked to the business carried out on the very lucrative (and very speculative) segment of the debt of risky companies. This niche has seen volumes explode in recent years. “With the coronavirus crisis, the leverage lending market (editor’s note: loans granted by a financial institution to a company with high debt), characterized by leveraged products of the CLO type (editor’s note: collateralized loan obligation), is completely illiquid and fell, notes the anxious investor. Credit Suisse is one of the major players in this area. ”
In 2018, the establishment was the third largest facilitator in leverage lending operations in the United States, at $ 57.7 billion, just behind JP Morgan and Goldman Sachs, according to Forbes magazine. “We know that the Credit Suisse merchant bank, present in fixed income (editor’s note: interest rate market), has a more pronounced risk profile than that of UBS, which is reflected in its spread of credit that climbs in times of crisis, “says Loïc Bhend, financial analyst at Bordier in Geneva.
Any potential concerns? “Leaving these illiquid markets or having to absorb leverage lending products on the balance sheet that have not been sold would force establishments to make large losses,” said Anton Sussland. One would almost fear a remake of the 2008 crisis, where similar products, but intended for the real estate market, had set fire to the powder.
Big customers solicited
Another astonishing element, Credit Suisse has just launched a campaign with its large customers (institutional, family offices, etc.) by offering to block cash for 12 to 18 months, offering in return a generous interest rate of 1% on average.
If this thirst for cash seems troubling, Credit Suisse is reassuring. There would be no cash flow problem. “We have a solid balance sheet, we are well capitalized, we practice conservative liquidity management and we continue to have good access to the financing markets,” said Katrin Schaad, spokesperson for the establishment. Given all of these factors, we are able to support and transact with our customers worldwide. “
Worried about FINMA, the Financial Market Supervisory Authority? “In the current situation, characterized by the volatility of the financial markets and the slowdown of the world economy, banks and insurance companies will feel more and more pressure on their loan portfolios and their investments”, answers his door Speech Tobias Lux. But the latter is intended to be positive. “However, Swiss financial institutions were well prepared for the current market turmoil and are well equipped to deal with acute crisis scenarios.” The rest will tell us if there was indeed no hole in the sole.
Created: 09.04.2020, 21h48
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