The massive fall in the share price (more than half since the beginning of the year) of the large Swiss bank Credit Suisse is causing concern in the financial market. European financial supervisory authorities are alarmed by the possible risks of contagion in the banking industry. Let’s not forget that the collapse of Lehman Brothers and the aftermath of the 2008 financial crisis are still fresh in the collective psyche.

The strong price turmoil at major Swiss bank Credit Suisse has raised concerns about possible implications for the financial market as a whole. Shares of Credit Suisse fell 12% on the Zurich stock exchange on Monday before recovering slightly.

Confidence in the troubled institution in the capital market is clearly falling. Credit Suisse’s market value is currently less than ten billion Swiss francs. “For a bank of this size and complexity, this is an alarming sign,” commented experts at the American investment bank KBW to Tagesschau.de.

Expensive insurance

Upheavals in the stock market fuel doubts about the institute’s financial strength. Funding for future corporate restructuring looks doubtful. Credit Suisse’s rise in credit default swaps (CDS) has caused a stir. The price of these insurances indicates how stable the market considers the institution.

In the case of Credit Suisse, insurance prices rose to 272 basis points on Monday. Therefore, investors have to pay 272 thousand euros to secure the bonds of the institute in the amount of ten million euros.

Expenses have quadrupled since the beginning of June – a clear sign that investors are worried about the stability of the big Swiss bank, according to the online page of the first German television ARD.

This is very reminiscent of 2007, when the financial crisis was predicted, commented Naeem Aslam, the chief market analyst of the brokerage company AvaTrade. And at that time, the prices of creditor insurance rose sharply.

Discussion restructuring

Credit Suisse is now facing a major restructuring of its business model, raising growing doubts among observers.

In July, Credit Suisse Group CEO Ulrich Koerner and board chairman Axel Lehmann announced a new restructuring after the institution lost billions of euros. Details of this restructuring will be announced at the end of October.

According to media reports, it is planned to significantly reduce risky and capital-intensive banking investments, which is associated with large costs.

Compensation for highly paid investment specialists, as well as a loss-making sale of parts of the group, will hit the big bank hard financially. To compensate for these losses, other businesses will likely have to be divested.

It is not yet clear whether these measures will be sufficient to finance the restructuring. Analysts at the American investment bank Keefe, Bruyette & Woods (KBW) suggest that Credit Suisse still has four billion francs to mobilize new funds from the market to increase capital.

A matter of trust

Confidence in the bank’s management was also affected. Last year, two of the bank’s main partners, US hedge fund Archegos and supply chain financier Greensill, made headlines with their spectacular bankruptcies. In late April, US federal prosecutors arrested and charged Bill Hwang, the owner of Archegos Capital Management, and Patrick Halligan, the former CFO of his family office, with fraud. They were arrested at their home and charged with wire fraud, financial fraud and wire fraud, according to an indictment filed April 27 by prosecutors in a New York court.

U.S. prosecutors allege that Bill Hwang and a former employee conspired to manipulate the stock prices of several companies to increase their profits, and that their scheme, which relied heavily on debt, helped Archegos Capital, Hwang’s family office, increase the value of its portfolio from Weed 1 .5 to $35 billion in one year.

The New York Times recalled at the time that the collapse of Archegos Capital last March shocked Wall Street and caused heavy losses to leading banks such as Credit Suisse, the financial institution most affected by Hwang’s insolvency.

Critics also claim that the bank then held on to Thomas Gottstein’s head for too long.

New CEO Ulrich Koerner made the announcement to Credit Suisse employees over the weekend. It is noted that the bank has a “strong capital base and liquidity.” However, the stock market’s further decline since the start of the week suggests that investors are still in doubt.

“General warning”

Supervisory authorities have long recognized the possibility of contagion in the banking sector. Last week, the European Systemic Risk Board (ESRB) issued a “general warning”. According to the committee, it identified “a number of serious risks to financial stability.” “Recent geopolitical events” would make this more likely.

As reported by the Reuters agency, both the Swiss financial market regulator Finma and the Bank of England in London are closely monitoring the development of events at Credit Suisse and are working together. The banking institution has a strong presence in the UK.

Swiss secrets

Credit Suisse’s clients over the years have included controversial heads of state and corrupt officials, according to the leak, which was verified by German broadcasters NDR, WDR and SZ. This resulted in the documentary Suisse Secrets: Dirty Money, which was released in February this year and can be viewed here.

Investigative journalism sheds light on Credit Suisse’s dark past. The past, the consequences of which can hit the financial house hard now, years from now.

From the 1940s until the last decade, the big Swiss bank allegedly provided criminal underworlds, businessmen and corrupt politicians, as well as secret service chiefs a safe haven for their assets – despite all the bank’s public declarations of support for “white money” policies. The person who sent the data form to the German media also sent a message with the motivation for his gesture: “I find Swiss bank secrecy immoral.” Let’s add that this secret is also completely legal.