Credit Suisse shares have plunged as credit risk continues to rise.
Concerns about the financial health of Swiss banking giant Credit Suisse over the weekend have led to fresh market fears of another meltdown similar to Lehman Brothers’ collapse in 2008. Rumors abound that Credit Suisse’s capital position is at great risk, with shares plunging to new lows on Monday and the cost of insuring the bank against default surged to its highest level in more than two decades.on Monday morning, hitting a new low of $3.
“The world is in a very different place than 2008, when there was a sudden realization of widespread losses throughout the entire financial system,” says James Angel, finance professor at Georgetown University’s McDonough School of Business. Although there are “painful realizations” going around markets today given a looming recession on the horizon, “there is no big systemic issue that is affecting everyone like it was in 2008,” he adds.
Credit Suisse remains “trapped in a circular loop of doom”—where bad news is just sending CDS higher and the stock lower despite management’s efforts to reduce market anxiety, says Vital Knowledge founder Adam Crisafulli. “Investors shouldn’t necessarily rush out to buy Credit Suisse shares, but we strongly doubt some type of a ‘Lehman Moment’ is imminent.”
In the past, distressed financial institutions have tried to fix capital ratios by selling assets or completing a deal or merger with another institution.
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