Share prices for the company fell by more than 12% on Swiss exchanges Monday, placing the firm at a valuation of less than $10 billion, according to a report from Bloomberg. Stock for Credit Suisse, which carries out asset management and investment banking services for clients across the globe, had already fallen more than 50% since the beginning of 2022.
As Credit Suisse drew comparisons to Lehman Brothers, a major American investment bank that filed for bankruptcy amid the 2008 financial crisis, CEO Ulrich Koerner sought to quell speculation about the firm’s solvency in a Friday memo.
“I know it’s not easy to remain focused amid the many stories you read in the media — in particular, given the many factually inaccurate statements being made. That said, I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank,” Koerner wrote, noting that he was unable to provide more details on reforms until October 27.
Prices for Credit Suisse’s five-year credit default swaps, financial products that act as insurance contracts that pay if a company fails to meet its obligations, soared by more than 1% on Monday, according to a report from the Financial Times. Credit Suisse’s short-term credit default swaps increased more than 4%, indicating that investors are hedging for a near-term crisis.
“We are in the process of reshaping Credit Suisse for a long-term, sustainable future — with significant potential for value creation,” Koerner continued in his memo. “Given the deep franchise we have, with a long-standing focus on serving some of the world’s most successful entrepreneurs, I am confident we have what it takes to succeed.”
Credit Suisse has been battling various lawsuits regarding fraud and corruption, including the case of one banker caught forging client signatures to make stock bets without their knowledge. The company has failed to turn a profit so far this year.
Beyond macroeconomic pressures related to the Russian invasion of Ukraine, to which Credit Suisse was exposed, many investment banks have been experiencing lower demand for their services amid an economy that continues to shrink. Goldman Sachs recently returned to culling its lowest performers, with other banks expected to follow.
Indeed, the United States economy met the rule-of-thumb definition of a recession — two consecutive quarters of negative growth — as the economy contracted at a 1.6% annualized rate in the first quarter and a 0.6% pace in the second quarter. Inflation has remained near four-decade highs while core inflation continues to increase, prompting Federal Reserve Chair Jerome Powell to indicate his willingness to induce “pain” while combating inflation. Interest rate hikes from the central bank dampen prices by increasing the cost of borrowing money for businesses and consumers.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell remarked at a speech in Jackson Hole, Wyoming. “Without price stability, the economy does not work for anyone.”
Rising interest rates have led to mortgage rates nearing 7%, according to data from government-backed mortgage company Freddie Mac, even as residential real estate prices soar. Home prices are expected to increase another 4% in 2023 — a relative slowdown from 17.8% in 2021 and 12.8% in 2022.
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