In the social media, users warn of a bigger financial crash than in 2007 because of the difficulties of the major Swiss bank Credit Suisse. UBS and Deutsche Bank are also in danger. The facts show that so far there is much to be said for scaremongering.
The horror scenarios that users on Twitter, Reddit and YouTube are spreading about the future of major European banks are currently making many already crisis-ridden citizens break out in a sweat. The Swiss Credit Suisse would go bankrupt, write some. Others believe that UBS and Deutsche Bank are also in danger. The greatest financial crisis of all time is beginning, conclude others.
Since several media have taken up the topic, the horror scenarios have reached the general public. Nevertheless, they remain grossly exaggerated: Credit Suisse, UBS and Deutsche Bank are going through a difficult time. But they are a long way from bankruptcy. Anyone who speaks of an impending financial crisis spreads panic.
The big banks’ concerns began at the weekend with social media posts about the supposedly impending bankruptcy of Credit Suisse. On Monday, the bank’s share price temporarily fell in the double-digit percentage range. Because the price turbulence seemed to confirm the announced horror scenarios in the eyes of some observers, fear grew.
It is difficult to reconstruct why users on social media started the panic about Credit Suisse at the weekend. The downgrading of the bank in the rating by the American agency S may have played a role
Because Credit Suisse is also threatened with losses due to discontinued business in and with Russia and because the exit from the risky investment business will cost them a lot of money for years to come, some observers are concerned about the company’s solvency.
When CEO Ulrich Körner then spoke of a “critical moment” for Credit Suisse at the end of last week and, according to media reports, the bank tried to calm down larger investors by phone, they set the stage for the concerns that broke out over the weekend.
As the week progressed, more and more media jumped on the bandwagon. “Is the next Lehman Brothers threatening?” many ask, drawing comparisons to the bankruptcy of the US bank, which in 2008 caused the first domino to fall, bringing the world financial system close to collapse.
Some observers drew Deutsche Bank and UBS into their concerns because both banks, like Credit Suisse, currently have to pay more for so-called credit default insurance. With this insurance, financial institutions protect themselves against loans that are not repaid: if the debtor goes bankrupt, the insurance company takes over. The insurance is therefore ancillary costs of the lending business.
If these additional costs become more expensive for banks, this reduces their competitiveness: Credit Suisse, UBS and Deutsche Bank have to charge higher interest rates for loans in order to pay for default insurance. Customers go to the competition. All three banks could suffer from this influence in the future, some worry.
Deutsche Bank and UBS are facing some different, some similar challenges to Credit Suisse, which will cost them a lot of money over the years.
Despite all the problems at the three major banks, concerns about a financial crisis are completely exaggerated. A broader view explains why.
Credit Suisse, which many warners cite as the main cause of a possible collapse, has been going through a difficult time since at least 2021: two hedge fund bankruptcies cost the financial institution a total of around six billion euros, and a data leak uncovered criminal deals with war criminals, autocrats and criminals. The bank’s share price has already fallen by half this year. So the problems are well known.
However, Credit Suisse is in the process of addressing its problems: It has almost all (86 percent) of its personal loan business backed by guarantees, according to its balance sheet, which limits the risk of default. She has reduced her risky leveraged investing business by almost half since early 2021. The same applies to possible burdens on Russia. The bank can cope with these risks in the short term, but in the long term it wants to be more secure and less capital-intensive.
In this way, Credit Suisse will probably have to sell other parts of the company at a loss and pay dearly to highly paid bankers. This has already brought her considerable losses in recent months. However, the bank is also prepared for this.
The FOCUS Online Guide answers all important questions about pensions on 135 pages. Plus 65 pages of forms.
The banking regulations, which have been tightened enormously since 2008, require financial institutions to have enormous reserves so that they can survive a restructuring and a crisis. Credit Suisse even exceeds many requirements by a good third. With around 100 billion euros in deposit insurance and almost 160 billion in cash and cash equivalents, the bank is still in a solid position.
Should Credit Suisse nevertheless get into trouble, Switzerland is unlikely to repeat the mistake of the US government, which in 2008 did not allow the state to bail out Lehmann Brothers. If Switzerland keeps the bank alive, the financial crisis will not come.
The same applies to UBS and Deutsche Bank: They also exceed all the requirements of the regulators, have equity capital and, in the worst case, are likely to be rescued by the state. They, too, will not trigger any financial crisis in the near future.
Even if Credit Suisse, UBS and Deutsche Bank are unlikely to trigger a financial crisis, the financial institutions are under pressure. Let’s stay with Credit Suisse: the bank will possibly raise money on the capital markets for its restructuring, i.e. issue new shares. Due to the low stock market price, this reduces the share that existing security holders hold in the company and depresses the price. Investors are therefore looking at an uncertain future with the shares of the banks. Those who do not belong to this group, however, have to fear.
Investors will probably find out more at the end of October. Then Credit Suisse CEO Körner wants to present details of the planned conversion.
Also interesting:
