Why Credit Suisse is Falling?
Business
The Pain continues.
Credit Suisse loses top shareholder. Here’s why…
Harris Group was one of Credit Suisse’s (CS) largest and longest-standing shareholders, owning a 10% stake as recent as last year.
Now, they’ve sold it all.
Harris Group’s CIO for International equities, David Herro, didn’t mince words in this morning’s Financial Times interview:
“It has been a measurable drag on our performance… We meet every company we own, but you spend a lot more time with your problem children. Credit Suisse has been a drain of time and value for years.”
Wow, tell us how you really feel.
Harris Group was invested in CS for over a decade! So what was the final straw that broke the camel’s back?
Turns out, depositor outflows have been much more severe than anyone may have realized.
CS’s most recent annual report shows how the bank hemorrhaged a staggering $120 billion of client funds in just the last 3 months of 2022.
Even worse, CS chairman Axel Lehmann (yes, that’s really his name) may have lied in order to calm investor concerns.
According to Reuters, Swiss regulator FINMA is investigating comments made by Lehmann at a December 1st conference, in which he claimed that outflows had “completely flattened out” and “partially reversed.”
This contradicts CS’s own 10-K filing, which shows a tsunami of outflows even as Lehmann made those statements.
Yes, seems the bankrun on CS was a top concern for Harris Group:
“There is a question about the future of the franchise [CS]. There have been large outflows from wealth management…”
Outflows are the kiss of death because banks are fractionally reserved, i.e. levered to the hilt on bets, and withdrawals function like margin calls on their business activities.
This is when things get desperate and banks start setting up honey fly traps to attract more capital.
In fact, Credit Suisse is now offering aggressively higher deposit rates to attract new funds from wealthy clients in Asia.
They’re offering a 6.5% annual rate on new three-month deposits of $5 million or above. And a rate as high as 7% for one-year deposits.
These rates are far above matched maturity bills. And moreover, higher than CS’s own lending rates, suggesting that to attract clients, the bank is forced to eat GIANT losses.
As we’ve learned from the death spasms of companies like Celsius, which offered up to 17% APY on coins, higher rates could be a bad omen.
At least, the market seems to agree…
On the news of boosting deposit rates, CS shares crashed to a new all-time-low last week, now down 95% from 2007.
It’s no coincidence that CS has been in steady decline since much of the banking sector became socialized in 2007.
Because when capitalism leaves, so does capital.
Written by Andrew Axelrod
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Shout-out to Mark Wong for highlighting the story.
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