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Banking experts predict what will happen next

People walk in front of Credit Suisse headquarters in New York City on March 15, 2023.

Spencer Pratt | Getty Images

credit suisse may have received Swiss National Bank liquidity lifeline.

Credit Suisse management has started talks this weekend to assess its “strategic scenario,” Reuters reported, citing sources.

on Friday, The Financial Times reported or UBSMore Negotiations to acquire all or part of Credit Suisse. citing multiple people involved in the discussionThe Swiss National Bank and its regulator, Finma, are behind negotiations aimed at boosting confidence in the Swiss banking sector, according to the report.

Neither bank would comment on the report when contacted by CNBC.

Banks are undergoing major strategic reviews aimed at restoring stability and profitability after the financial crisis. A string of losses and scandalsbut the market and stakeholders still seem unconvinced.

Stocks fell again on Friday Couldn’t hold up as it recorded its worst weekly decline since the coronavirus pandemic began thursday score This follows the announcement that Credit Suisse will receive up to 50 billion Swiss francs ($54 billion) in loans from the central bank.

Credit Suisse lost about 38% of its deposits in the fourth quarter of 2022 and revealed in its belated annual report earlier this week that the outflow has yet to recover. A full-year net loss of CHF 7.3 billion was reported for 2022, with a further “significant” loss expected in 2023 and a return to profitability next year as restructuring begins to bear fruit.

This week’s stream of news is unlikely to have changed the minds of depositors looking to withdraw their money. credit default swapInsuring bondholders against corporate default hit a new all-time high this week.

Bank default risk has surged to crisis levels, with the one-year CDS rate rising nearly 33% to 38.4% on Wednesday and closing at 34.2% on Thursday, according to CDS rates.

UBS sale?

There have long been rumors that some or all of Credit Suisse could be acquired by a domestic rival. UBSMoreboasts a market cap of around $60 billion, compared to its struggling compatriot’s $7 billion.

JPMorgan’s Kian Abouhossein said the acquisition was “a particularly likely scenario by UBS.”

In a memo on Thursday, he said a sale to UBS would likely result in: Closure of investment banks. Maintenance of property management departments and property management departments.

Both banks are reportedly against the idea of ​​a compulsory partnership, but events this week could change that.

Bank of America strategists said on Thursday that Swiss authorities may prefer to combine Credit Suisse’s main domestic bank with smaller regional partners.

Need for an “orderly solution”

Barry Norris, CEO of Argonaut Capital, which holds a short position at Credit Suisse, stressed the importance of an orderly solution to the crisis.

“The bank as a whole is essentially contracting, and whether that contraction will be orderly or chaotic is a debate at the moment, and neither will create value for shareholders,” he told CNBC on Friday. Squawk Box Europe.”

CIO says Credit Suisse's key to survival is guarantees to depositors

European bank stocks suffered a sharp decline over the recent Credit Suisse story, highlighting market concerns over contagion effects given the sheer size of the 167-year-old financial institution.

The sector was rocked earlier in the week by the failure of the Silicon Valley Bank, the biggest bank failure since Lehman Brothers, and the closure of a New York-based signatory bank.

However, in terms of size and potential impact on the global economy, these companies are worth about CHF 530 billion at the end of 2022, compared to Credit Suisse, which has a balance sheet roughly twice as large as Lehman Brothers at the time of its bankruptcy. It pales in comparison to Also, interconnection with multiple international subsidiaries is much more global.

“In Europe, I think the battlefield is Credit Suisse, but if Credit Suisse has to chaotically dissolve its balance sheet, those problems will extend beyond other European financial institutions and the banking sector. In particular, I think, “commercial real estate and private equity also look vulnerable to what’s happening in the financial markets right now,” Norris warned.

Analysts say this is a long-awaited move for Credit Suisse shares

Andrew Kenningham, chief European economist at Capital Economics, also stressed the importance of an “orderly solution.”

“We have resolution plans as Global Systemically Important Banks (GSIBs), but these plans (or living wills) have not been tested since they were introduced during the global financial crisis,” Kenningham said. rice field.

“Experience so far suggests that if authorities act decisively and debtors are protected, they can be resolved quickly without spreading the infection.”

Regulators are aware of this, but until a long-term solution to the banking problem becomes clear, as evidenced by the intervention of the SNB and Swiss regulator FINMA on Wednesday, the “failed The risk of “settlement” will worry the market.

Central bank providing liquidity

The biggest question economists and traders are grappling with is whether the Credit Suisse situation poses systemic risk to the global banking system.

Oxford Economics said in a report on Friday that it did not include the financial crisis in its base case. At the moment, I see the Credit Suisse and his SVB issues as “a collection of different idiosyncratic issues.”

“The only general problem we can speculate at this stage is that higher yields have forced banks, forced to hold large amounts of sovereign bonds against liquid deposits, to sell these high-quality bonds. It means we may have an unrealized loss of $1,000,000,” said lead economist Adam Slater.

“Most banks, including Credit Suisse, know that their exposure to higher yields is heavily hedged. is difficult to ascertain.”

Credit Suisse could see a 'big turnaround' if situation is handled well, says asset manager

Nonetheless, Slater noted that “fear itself” could cause depositor flight, making it important for central banks to provide liquidity.

of US Federal Reserve System In the wake of the SVB’s demise, it set up new facilities and moved quickly to protect depositors. Swiss National Bank has expressed its continued support for Credit Suisse and is also actively involved European Central Bank and the bank of england.

“The most likely scenario, therefore, is for central banks to remain vigilant and provide liquidity to help the banking sector through this episode, which means tensions will gradually ease. . LDI pension episodes in the UK Late last year,” Slater suggested.

But Kenningham argued that while Credit Suisse is seen as a weak spot among Europe’s big banks, it’s not the only bank to suffer from poor profitability in recent years.

“Furthermore, this is the third ‘one-off’ issue in several months, following the UK gilt market crisis in September and the collapse of a US regional bank last week, so no other issues arise. It is foolish to assume that the way,” he concludes.

— CNBC’s Darla Mercado contributed to this report

Summarize this content to 100 words People walk in front of Credit Suisse headquarters in New York City on March 15, 2023. Spencer Pratt | Getty Imagescredit suisse may have received Swiss National Bank liquidity lifeline.Credit Suisse management has started talks this weekend to assess its “strategic scenario,” Reuters reported, citing sources.on Friday, The Financial Times reported or UBSMore Negotiations to acquire all or part of Credit Suisse. citing multiple people involved in the discussionThe Swiss National Bank and its regulator, Finma, are behind negotiations aimed at boosting confidence in the Swiss banking sector, according to the report.Neither bank would comment on the report when contacted by CNBC.Banks are undergoing major strategic reviews aimed at restoring stability and profitability after the financial crisis. A string of losses and scandalsbut the market and stakeholders still seem unconvinced.Stocks fell again on Friday Couldn’t hold up as it recorded its worst weekly decline since the coronavirus pandemic began thursday score This follows the announcement that Credit Suisse will receive up to 50 billion Swiss francs ($54 billion) in loans from the central bank.Credit Suisse lost about 38% of its deposits in the fourth quarter of 2022 and revealed in its belated annual report earlier this week that the outflow has yet to recover. A full-year net loss of CHF 7.3 billion was reported for 2022, with a further “significant” loss expected in 2023 and a return to profitability next year as restructuring begins to bear fruit.This week’s stream of news is unlikely to have changed the minds of depositors looking to withdraw their money. credit default swapInsuring bondholders against corporate default hit a new all-time high this week.Bank default risk has surged to crisis levels, with the one-year CDS rate rising nearly 33% to 38.4% on Wednesday and closing at 34.2% on Thursday, according to CDS rates.UBS sale?There have long been rumors that some or all of Credit Suisse could be acquired by a domestic rival. UBSMoreboasts a market cap of around $60 billion, compared to its struggling compatriot’s $7 billion.JPMorgan’s Kian Abouhossein said the acquisition was “a particularly likely scenario by UBS.”In a memo on Thursday, he said a sale to UBS would likely result in: Closure of investment banks. Maintenance of property management departments and property management departments.Both banks are reportedly against the idea of ​​a compulsory partnership, but events this week could change that.Bank of America strategists said on Thursday that Swiss authorities may prefer to combine Credit Suisse’s main domestic bank with smaller regional partners.Need for an “orderly solution”Barry Norris, CEO of Argonaut Capital, which holds a short position at Credit Suisse, stressed the importance of an orderly solution to the crisis.”The bank as a whole is essentially contracting, and whether that contraction will be orderly or chaotic is a debate at the moment, and neither will create value for shareholders,” he told CNBC on Friday. Squawk Box Europe.”European bank stocks suffered a sharp decline over the recent Credit Suisse story, highlighting market concerns over contagion effects given the sheer size of the 167-year-old financial institution.The sector was rocked earlier in the week by the failure of the Silicon Valley Bank, the biggest bank failure since Lehman Brothers, and the closure of a New York-based signatory bank.However, in terms of size and potential impact on the global economy, these companies are worth about CHF 530 billion at the end of 2022, compared to Credit Suisse, which has a balance sheet roughly twice as large as Lehman Brothers at the time of its bankruptcy. It pales in comparison to Also, interconnection with multiple international subsidiaries is much more global.”In Europe, I think the battlefield is Credit Suisse, but if Credit Suisse has to chaotically dissolve its balance sheet, those problems will extend beyond other European financial institutions and the banking sector. In particular, I think, “commercial real estate and private equity also look vulnerable to what’s happening in the financial markets right now,” Norris warned.Andrew Kenningham, chief European economist at Capital Economics, also stressed the importance of an “orderly solution.”“We have resolution plans as Global Systemically Important Banks (GSIBs), but these plans (or living wills) have not been tested since they were introduced during the global financial crisis,” Kenningham said. rice field.“Experience so far suggests that if authorities act decisively and debtors are protected, they can be resolved quickly without spreading the infection.”Regulators are aware of this, but until a long-term solution to the banking problem becomes clear, as evidenced by the intervention of the SNB and Swiss regulator FINMA on Wednesday, the “failed The risk of “settlement” will worry the market.Central bank providing liquidityThe biggest question economists and traders are grappling with is whether the Credit Suisse situation poses systemic risk to the global banking system.Oxford Economics said in a report on Friday that it did not include the financial crisis in its base case. At the moment, I see the Credit Suisse and his SVB issues as “a collection of different idiosyncratic issues.”“The only general problem we can speculate at this stage is that higher yields have forced banks, forced to hold large amounts of sovereign bonds against liquid deposits, to sell these high-quality bonds. It means we may have an unrealized loss of $1,000,000,” said lead economist Adam Slater.“Most banks, including Credit Suisse, know that their exposure to higher yields is heavily hedged. is difficult to ascertain.”Nonetheless, Slater noted that “fear itself” could cause depositor flight, making it important for central banks to provide liquidity.of US Federal Reserve System In the wake of the SVB’s demise, it set up new facilities and moved quickly to protect depositors. Swiss National Bank has expressed its continued support for Credit Suisse and is also actively involved European Central Bank and the bank of england.“The most likely scenario, therefore, is for central banks to remain vigilant and provide liquidity to help the banking sector through this episode, which means tensions will gradually ease. . LDI pension episodes in the UK Late last year,” Slater suggested.But Kenningham argued that while Credit Suisse is seen as a weak spot among Europe’s big banks, it’s not the only bank to suffer from poor profitability in recent years.”Furthermore, this is the third ‘one-off’ issue in several months, following the UK gilt market crisis in September and the collapse of a US regional bank last week, so no other issues arise. It is foolish to assume that the way,” he concludes.— CNBC’s Darla Mercado contributed to this report
https://www.cnbc.com/2023/03/18/credit-suisse-banking-experts-predict-what-could-happen-next.html Banking experts predict what will happen next

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