Credit Suisse this week cut the cost of buying insurance to protect against defaults on its loans, in a sign of growing nervousness about the lender’s financial position following the failure of two US banks that sent shockwaves through global markets. reached a record high.
As Credit Suisse’s stock and bond prices have whipsawed in recent days, the bank’s price of credit default swaps (CDS) tied to it — derivatives that act like insurance and pay out if a company defaults on its borrowings. Stops – the rocket is done. The Swiss bank’s five-year US dollar CDS has now risen above 1,000 basis points – as recently as less than 400 basis points in early March – with a similar move for euro-based contracts.
The increase in the price of insurance against default follows a series of failures weighted on Credit Suisse’s equity and debt, culminating on Wednesday with the Swiss National Bank borrowing SFr50bn ($54bn) and announcing a SFr3bn loan repurchase Hui.
“Together [Credit Suisse]It’s just been one headline after another for the better part of the past five years, said John McClain, portfolio manager at Brandywine Global Investment Management. “It’s one job after another here.”
Credit Suisse’s recent move into CDS also follows the failure of US lenders Silicon Valley Bank and Signature. Ratings agency Moody’s on Tuesday raised its outlook for the entire US banking system to “negative” from “stable” due to a “sharp deterioration in the operating environment”.
Other big banks have also seen their CDS prices rise, but dwarfed the moves in the Credit Suisse contracts. The five-year dollar CDS for US lender JPMorgan added 15 basis points on the week to Thursday, reaching 94 basis points, according to Bloomberg data. The same measure of CDS for Citi rose by about 20 basis points to 113 basis points.
Five-year euro CDS for Deutsche Bank, one of Credit Suisse’s European counterparts that has faced its own stresses in recent years, climbed more strongly in value, rising more than 70 basis points to more than 160 basis points. Done.
Joost Beaumont, head of bank research at ABN AMRO, wrote this week referring to the “CS situation”, “The recent failure of two US banks has made investors more cautious in the sector, with ‘problem’ banks more vulnerable.” has also been brought under greater scrutiny.” as a special case” and does not indicate “broader weakness in the banking sector”.
Beaumont said the “special cases” argument is reflected in the spread of other banks’ bonds being lower than Credit Suisse’s, referring to the difference in yields between bank bonds and less-risky government debt.
Single company name CDS are often very thinly traded, helping to exaggerate market movements. Broadly speaking, “when a company is under stress, their CDS tends to be under stress, but this is exacerbated by the fact that it is a very shallow market”. said a bank credit analyst at a large US asset manager.
Orignal Post From: The cost of insurance for Credit Suisse loans is dwarfed by that of other banks
