Well to be fair to facts coming out recently:
… one can only see the writing on the wall.
To be fair the statement is “Material weakness in reporting and control procedures”(*)
It means risk of having a potential reporting miststatment which is not at all the same as having an actual mistatement. I am not aware of fraud either
I have no affiliation to CS but if it is badly damaged as seems likely it is bad news for the swiss economy and for consumers.
(*) press article
“…PwC noted that management did not design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its consolidated financial statements within this system”
Is anyone trading Bonds?
This new policy is just a joke for any bond traders, why even bother to trade bonds if you can “redeem” them at the FED or SNB for 1:1 value?
Nobody can redeem bonds at the FED at par value. Banks can borrow against specific securities (mostly government issued ones), at par value, for an interest rate (Overnight Index Swap +10 bps) for one year: The Fed - Bank Term Funding Program
The OIS+0.1% is likely to be higher than the coupon on the underwater bonds used as collateral with this program, so making use of it should still cost the banks something. They get access to liquidity, at a cost.
Corporate bonds are unaffected, except insofar that bank behavior may differ slightly in regards to what bonds and how much of them they buy under the current circumstances and depositors may have a (false) sense of security, considering their assets safe in a bank account, instead of using short term bonds for their bigger cash balances.
It is the lesser evil that could happen: failing banks management, shareholders and bondholders feel the heat while depositors are protected, avoiding bank runs that could/would spread to the whole industry.
For the specific case of Credit Suisse, we don’t know what specific agreement was reached with the SNB. It is likely to involve some sort of interest payment, and the executive board are already voluntarily (by decision of the bank’s board) getting no bonuses for 2022. Management that did mistakes is likely to feel internal burn too. Stocks and bondholders are as exposed as ever, except the Bank/Group face a lower risk of liquidation (which is a big bonus, I grant you that).
Bonds of the banks “at risk” are subject to the same risks as usual (bondholders are not getting bailed out), older treasuries may become more attractive but their market is already affected by the FED balance sheet policy so the net effect is hard to calculate, and I would say that banks’ treasuries assets are a drop in the ocean in regards to those already present on the FED’s balance sheet.
I’d say trading bonds is as attractive as ever, except they now have some yield, may still be subject to more interest rate hiking risk. They are exposed to credit risk as usual (and some institutions are now being considered as more risky than was previously assessed).
CSGN already back at 2.09 atm… Thanks to SNB.
I consider this a bail-out.
What does anyone gain by having CS failing? (esp. in a run which often doesn’t mean the bank did anything bad, but has a liquidity/trust crisis)
Just read Register to read | Financial Times which looks like a deeper explanation as to what’s going on.
In the short-term, nothing. Quite the contrary. Except for short-sellers.
My issue with this type of bail-out is that it weakens the currency (because there’s more of it than there would otherwise be) and thus hurts everybody. Another aspect is that it encourages more risk-taking in the future. No chance for any bubble to deflate.
As much pain as it is, I think the equity and bond holders should be wiped out in these scenarios. We would probably have a recession, which is bad and hurts, but zombie companies doing things that aren’t actually that useful would fail and people would spend their time on more useful things. More new companies and ideas would come up - in crisis there is opportunity.
The government and central banks think they can control everything with the money supply, but I think it just leads to a much larger crisis many decades later.
But this is just my opinion, I think most people would disagree (including in this forum).
Neither equity nor bondholders are getting rescued though, right? Central banks are being a backstop to avoid a panic, but I think everyone agrees that CS is in a bad shape and will end up either split up or merge with UBS (if they don’t manage to turn it around after their 12th restructuring).
Them failing due to a run/liquidity crisis (esp. when they actually have the required assets) likely does more bad than good (it propagates further, high volatility, etc.)
The share price is up significantly based on the “backstop”. And due to them losing less customers based on the “backstop” they are more likely to service their debts (e.g. bonds) with income.
Not saying that’s the goal of SNB/Finma but I would say it’s collateral “damage”.
It would definitely be a painful experience. But I think they’re delaying it, not avoiding it.
I would join with what @marcel-burkhard wrote: capitalism requires that underperforming bears consequences. A CS failure would be a reminder that you can’t expect to be there forever if your business model includes being gullible (Archegos) and having a disputable moral compass which leads you to repeatedly settle with authorities/regulators or pay fines for shady applications of the laws of the countries where you operate.
No bank can deal with a big enough bank run but I am not thinking about taking assets out of UBS, while I have actively tried to avoid doing business with CS recently. UBS name hasn’t appeared in scandals with enough regularity to spark red lights in my mind, while CS’ one has. Their [CS] current vulnerability is mostly their own doing and stems from their own practices, if you ask me.
That being said, a Credit Suisse failure would bear dramatic consequences, for investors, which is totally how things should be as they are in the business of dealing with the consequences of the risks they take (and are well compensated for when things go well), but also for many “common folks”, who haven’t asked for any of this. The challenge for regulators is to protect the general public while letting the investors and the management of the companies that fail get burned in the fire they were compensated to make not happen. Regulators, and especially the FED, have been doing an amazing job of that up to now and I am very grateful that we get to have such dedicated, poised, wise and knowledgeable people in key offices.
Banks are (and always will be) special though. They have to follow many regulations in exchange for having access to a lender of last resort. And IMO that won’t prevent CS from eventually failing if that’s what it ends up doing, it will just be orderly (eventually they’ll make a plan to split up the bank, afaik they’ve already started doing that, e.g. divesting out of the investment banking, etc. the shareholders will definitely pay the price of that – as they’ve already done, look at the share price over the past few years).
I agree that they are special and that keeping things orderly scores very high in the interest of the general public, which executive authorities and regulators are meant to serve. Providing a safety net is required sometimes and I’m not really sure I want CS to be allowed to fail if it gets there.
it would root out the consistently bad management and bad culture and ethics that CS have brewed throughout the last 15 years.
Even if there is a bailout coming, they are inherently going to lose that money again. Then it was an expensive 50B for the Federal state (i.e., Swiss taxpayers).
That’s not how it works, nobody is spending 50B. It’s only providing liquidity (banks put equivalent collateral and pay interests, in practice the SNB likely makes money on that)
Nassim Taleb agrees with you. It’s his concept of anti-fragility. A fragile system that cannot withstand any disruptive events will not improve it you keep preventing such events, quite the opposite. An anti-fragile system instead can get stronger if it experiences occasional disruption. He says that the financial system is quite fragile, also because governments and central banks so desperately try to avoid crashes and crises.
isn’t that the same “liquidity backstop” that the FED provided, but also closed down the three banks in the process?
No it’s not. The main change in the US is that banks can use their high quality collateral at par value (which basically remove the interest rate risk for banks that got too exposed by the rapid rate rise).
This isn’t the case in Europe.
(and actually the European central banks threw a lot of shade at the US here, most of the statement of the SNB wasn’t about CS but about the US banking regulation and stability: https://www.snb.ch/en/mmr/reference/pre_20230315/source/pre_20230315.en.pdf )
Believe this or not, but a few years ago I was on SBB train with some lady sitting in front of me. She was working and at some point put pile of papers on the shelf near the window. From the 1st page I saw it was from CS. Then she was having 2-3 phone conversations about her client (some Israeli-UK guy who wanted to evade taxes in UK) with her co-workers. She was discussing what to do in order to help him with that. In public. I’m pretty sure if I would really pay 100% attention to what she is saying and maybe try to make some photos of the documents, I’ll be able to find his name… I was astonished 
.