Credit Suisse and Deutsche Bank Face Extreme Downturn

Credit Suisse and Deutsche Bank Face Extreme Downturn
  • Credit Suisse’s CDS spread is at levels not seen since 2009.
  • Deutsche Bank’s price per share has averaged 0.3 times tangible book value (TBV).

The financial world is buzzing about Credit Suisse. The recent increase in Credit Suisse’s credit default swap spread has garnered media attention. A credit default swap, or CDS, is a kind of derivative that enables one investor to hedge against another’s credit risk by exchanging their own credit risk for that of the other. 

Lenders may hedge their bets by purchasing credit default swaps (CDS) from investors who have already agreed to compensate them if the borrower fails. In most cases, a high CDS reflects widespread market concern that a credit swap would be ineffective.

Global Recession on the Cards?

Presently, Credit Suisse’s CDS spread is at levels not seen since 2009. The price of default insurance on the company’s bonds increased by nearly 15% in the preceding week. Additionally, the Swiss bank’s market value fell to about 10 billion Swiss francs [$10.1 billion] as its share price hit a new all-time low last week, falling below $4.

Similarities may be seen between the present and the past at Deutsche Bank. Price per share has averaged 0.3 times tangible book value (TBV). If a company declares bankruptcy, common shareholders will get TBV. Many people have already described the current statistics as “extremely worrisome.” Experts believe the German government would “go all out” to rescue Deutsche Bank since it is Germany’s largest bank.

And yet, financial institutions are not standing idly by. The CEO of Credit Suisse has requested for less than 100 days to present a fresh recovery plan to investors. According to Bloomberg, Ulrich Koerner informed workers that the bank had a “strong capital base and liquidity position,” and promised to keep them apprised of developments until a new strategy plan was unveiled on October 27.

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