U.S. markets closed
  • S&P 500

    -1.14 (-0.03%)
  • Dow 30

    +152.97 (+0.45%)
  • Nasdaq

    -58.96 (-0.52%)
  • Russell 2000

    +5.67 (+0.30%)
  • Crude Oil

    -1.66 (-2.13%)
  • Gold

    +8.40 (+0.48%)
  • Silver

    +0.06 (+0.29%)

    -0.0008 (-0.07%)
  • 10-Yr Bond

    -0.0150 (-0.40%)

    -0.0023 (-0.19%)

    +0.5100 (+0.37%)

    -92.38 (-0.56%)
  • CMC Crypto 200

    +4.32 (+1.13%)
  • FTSE 100

    +20.07 (+0.27%)
  • Nikkei 225

    -100.06 (-0.35%)

Credit Suisse stock hits record low on capital concerns

Yahoo Finance Live anchors discuss stock performance for Credit Suisse amid investor concerns.

Video Transcript


BRIAN SOZZI: Here are three things you need to know right now. Credit Suisse trading under pressure after report the bank is speaking with major investors to calm fears concerning about the lender's financial health. The bank's credit default swap spread rose sharply Friday after a report Credit Suisse is looking to raise capital. This, the latest on what has been a rough year for the stock, down nearly 60% year-to-date.

And you see the chatter out there on social media, team. This might be the next Lehman movement. Now Julie, we lived through that moment. And I think we pushed back on that in our Slack channel.

This is not a Lehman moment, it's just a very wounded bank because of many bad bets that they made. Whether it was Archegos, they have a lot of litigation going against them. So you've now starting to see Wall Street research come in on Credit Suisse, saying they're going to need some form of capital raise. Whether that comes in debt, via new debt, or a share sale, whatever it is, this is a wounded bank. And good, strong, fundamental companies like a Goldman Sachs, Morgan Stanley, must be licking their chops because they will probably take more business from this company.

- Yeah, higher borrowing costs, and that due to some of the rating downgrades that the company has talked about, particularly also looking at the share prices at record lows for Credit Suisse. And so all of this considered, you're going to see across some of the banks these efforts to really assure or reassure that they have liquidity. And for banks especially, when they're going to be more relied on, especially in periods of an economic downturn, whether that's because of the businesses that are going to need some of the cash to get through and their own liquidity, a lot of people, individual households, businesses included, they rely on the banks for that. And for the banks themselves, they need to make sure that they also have the necessary liquidity and capital to weather through that storm themselves as well.

JULIE HYMAN: Yeah, and Credit Suisse is less a consumer facing bank, right? And does more investment banking, et cetera. So Ulrich Koerner is the CEO of Credit Suisse and he put out a memo over the weekend and tried to stem some of the chatter, some of the reputational damage that was being done about all this talk about the company's financial liquidity positions. And he said, we're in good shape. At the same time, he used the phrase that they were at a, quote, "critical moment".

And the market seems to have seized on that "critical moment" language and that then fanned even more flames about these concerns. Now, if you remember this phrase from the financial crisis, "credit default swaps". Do you remember those? That's basically the insurance that people take out against a company, against the risk of default on its debt.

And you can see that the credit default swaps on the right side of the screen, they actually spiked even higher. It was hard to see because it went really along that axis. But credit default swaps are really spiking to a very high level. In other words, investors are saying there is a much higher likelihood that the company will default on its debt.

However, pushing back against that, as you mentioned, Soz, is the idea that the company's capital ratio is at about 13%, which is a relatively high level. That basically is a way of measuring its liquidity position effectively and that signals that it is relatively robust despite all of this chatter. If not robust, it's not failing, right? The question is, what will it need to do to shore up liquidity further?

Will it need to sell assets? The real concern on the part of the market is that it will need to sell shares, equity of some kind, that would dilute existing investors positions. So there's a lot going on here. Lehman moment also implies that there's a systemic risk here. And I'm not hearing much real analysis that shows there's a systemic risk.

BRIAN SOZZI: Point of the morning. That is absolutely, that right there, shoots down I think any of the speculation you're seeing out there on Reddit boards and in Twitter. There is no systemic problem. In 2008, that was a housing crisis and you had a Lehman Brothers that was over leveraged with horrible, horrible, horrible debt and not enough assets to cover that and they lost complete market confidence.

So different situation. Now, Jefferies is out here this morning saying, assessing which assets Credit Suisse can sell will be difficult. Now, the first go to is them, do they sell their investment banking assets and restructure that? That business is already under strategic review.

They announced that a couple of months ago. But just because they could sell investment banking assets to raise cash doesn't mean that will put them in a good fundamental position coming out the other side. You sell those assets, that means likely more business lost to your competitors, which now starts a complete debt spiral.

- Yeah, and it doesn't help. I mean, of course, it jettisons them into that conversation of the Lehman thought or notion because of some of the management missteps, the scandals that have taken place at Credit Suisse too. So all of that combined is perhaps leading to some of that chatter. But more broadly here, continuing to watch Credit Suisse shares here hit some of these record lows.