Credit Suisse - Is it going to go bust, if so what happens?
Discussion
isaldiri said:
It's a definite repricing required for the AT1s (or perhaps one could perhaps argue they were always mis-priced previously...) but it's a bit of an exaggeration to state as per prior post that the entire AT1 market is worthless I think.....
WSJ is reporting European AT1 ETFs are down 8-13% today. It was one of my frustrations in 2012-13 that the AT1 was seen as a viable alternative to straight equity, since I was the equity banker trying to get on the rights issues/recaps. It seemed crazy to me that a bond could magically be decent loss absorbing capital yet sellable at low yields, when the share performance suggested a big question mark over the bank's capital in any event. A situation which would wipe out equity, would in many situations be massively large enough to immediately hit the AT1s.
Arguably criminal that the retail depositors were frequently stuffed with them.
Newc said:
And we (society at large) have the wrong expectations of regulators. They can only be effective at defining common standards for markets to use, and being an arm of state law enforcement after the event for financial crime.
To expect them to “see the CS / SVB problems coming” is to expect them to have perfect foresight and an ability to manage the global economy.
How about the Fed relaxing Dodd-Frank regs for banks with over $50bn to banks with over $250bn? So skipped SVBTo expect them to “see the CS / SVB problems coming” is to expect them to have perfect foresight and an ability to manage the global economy.
TBF it was more that idiot Trump
Edited by Adam. on Monday 20th March 13:04
86 said:
Seems regulators asleep at the wheel again across the world. Don’t see CS as the end of it. Indeed will be interesting to see how UBS digested this a lot of pain and sell off to come ?
If you are a regulator clever enough to understand it and notice it going wrong i presume they are clever enough not to be a regulator and infact be a banker/investor earning more actually doing it...Whoozit said:
It was one of my frustrations in 2012-13 that the AT1 was seen as a viable alternative to straight equity, since I was the equity banker trying to get on the rights issues/recaps. It seemed crazy to me that a bond could magically be decent loss absorbing capital yet sellable at low yields, when the share performance suggested a big question mark over the bank's capital in any event. A situation which would wipe out equity, would in many situations be massively large enough to immediately hit the AT1s.
Well, structurers and lawyers are there for a reason 
Adam. said:
How about the Fed relaxing Dodd-Frank regs for banks with over $50bn to banks with over $250bn? So skipped SVB
It's not entirely clear if the 2018 rollback of some of Dodd-Frank would have made any difference to SVB though. SVB was still required to undergo stress testing albeit at longer intervals and ultimately, stress testing scenarios can and always will be gamed by anyone with the will to do so. Or just the gradual accumulation of a lot of issues that blows up when some market stress starts to be applied - see CS....Whoozit said:
Agree with isaldiri. In October 2008 there was such a widespread lack of trust between banks, I was told by people who knew that we were 24 hours away from zero liquidity globally. Cashpoints would have stopped working. I marched over to my bank and transferred everything above the deposit guarantee to pay off an overseas mortgage, taking a horrendous spread on the FX in the process. I reasoned I'd rather have an asset I can live in if push comes to shove, than see all my cash vanish.
It's not what you know it's who you know! 
Scootersp said:
Whoozit said:
Agree with isaldiri. In October 2008 there was such a widespread lack of trust between banks, I was told by people who knew that we were 24 hours away from zero liquidity globally. Cashpoints would have stopped working. I marched over to my bank and transferred everything above the deposit guarantee to pay off an overseas mortgage, taking a horrendous spread on the FX in the process. I reasoned I'd rather have an asset I can live in if push comes to shove, than see all my cash vanish.
It's not what you know it's who you know! Gecko1978 said:
Scootersp said:
Whoozit said:
Agree with isaldiri. In October 2008 there was such a widespread lack of trust between banks, I was told by people who knew that we were 24 hours away from zero liquidity globally. Cashpoints would have stopped working. I marched over to my bank and transferred everything above the deposit guarantee to pay off an overseas mortgage, taking a horrendous spread on the FX in the process. I reasoned I'd rather have an asset I can live in if push comes to shove, than see all my cash vanish.
It's not what you know it's who you know! You get the idea these people do it on purpose. If they make a few bad bets they them go all in to make it worse enough to be bailed out.
The US etc had been telegraphing rate rises for years and did them slow as possible and yet somehow these w
kers like SVB still got stuck with the wrong paper. Why would you buy lots of long term bonds when the interest rate was nearly zero? Why not buy as short term as possible?
Meanwhile we have the useless banking background pm sunak trying to relax banking regulations . Bet the greedy tt has shut up about that now.
The US etc had been telegraphing rate rises for years and did them slow as possible and yet somehow these w
kers like SVB still got stuck with the wrong paper. Why would you buy lots of long term bonds when the interest rate was nearly zero? Why not buy as short term as possible? Meanwhile we have the useless banking background pm sunak trying to relax banking regulations . Bet the greedy t
t has shut up about that now.Whoozit said:
isaldiri said:
DeejRC said:
I’m amused at some of the responses on here about this.
Rather than 2008, this actually feels far more like 2011/12 and “peg” time.
The comparison with 08 is probably a little more relevant given the sudden concern gripping financial markets whether there is a wider systemic banking issue. The SNB doing whatever they want re the eur/chf peg in 2011 and in this case waving away rules to enable the ubs/cs merger (which they have been trying to engineer for a while) is somewhat of a sideshow....Rather than 2008, this actually feels far more like 2011/12 and “peg” time.
The SNB is the City of London - without morals.
As ever, we shall see what happens. Or to paraphrase the great Huggy Bear himself: it’s time to lay it out, for it all to play out.
Fundoreen said:
You get the idea these people do it on purpose. If they make a few bad bets they them go all in to make it worse enough to be bailed out.
The US etc had been telegraphing rate rises for years and did them slow as possible and yet somehow these wkers like SVB still got stuck with the wrong paper. Why would you buy lots of long term bonds when the interest rate was nearly zero? Why not buy as short term as possible?
Meanwhile we have the useless banking background pm sunak trying to relax banking regulations . Bet the greedy tt has shut up about that now.
The folk "invested" in it usually have good connections and there's usually a good case to be made for helping when things might force a wobble through the system. Why did SVB buy bonds like they did? Anyway, California governer Newsom, who has a number of accounts with SVB via three wineries, personal accounts and his wifes charity (to which SVB had donated $100k previously), lobbied he highest levels of the treasure and the White House to have a rescue package put in place. He was very grateful for the assistance afforded to SVB by Joe and co.....The US etc had been telegraphing rate rises for years and did them slow as possible and yet somehow these w
kers like SVB still got stuck with the wrong paper. Why would you buy lots of long term bonds when the interest rate was nearly zero? Why not buy as short term as possible? Meanwhile we have the useless banking background pm sunak trying to relax banking regulations . Bet the greedy t
t has shut up about that now.rodericb said:
Fundoreen said:
You get the idea these people do it on purpose. If they make a few bad bets they them go all in to make it worse enough to be bailed out.
The US etc had been telegraphing rate rises for years and did them slow as possible and yet somehow these wkers like SVB still got stuck with the wrong paper. Why would you buy lots of long term bonds when the interest rate was nearly zero? Why not buy as short term as possible?
Meanwhile we have the useless banking background pm sunak trying to relax banking regulations . Bet the greedy tt has shut up about that now.
The folk "invested" in it usually have good connections and there's usually a good case to be made for helping when things might force a wobble through the system. Why did SVB buy bonds like they did? Anyway, California governer Newsom, who has a number of accounts with SVB via three wineries, personal accounts and his wifes charity (to which SVB had donated $100k previously), lobbied he highest levels of the treasure and the White House to have a rescue package put in place. He was very grateful for the assistance afforded to SVB by Joe and co.....The US etc had been telegraphing rate rises for years and did them slow as possible and yet somehow these w
kers like SVB still got stuck with the wrong paper. Why would you buy lots of long term bonds when the interest rate was nearly zero? Why not buy as short term as possible? Meanwhile we have the useless banking background pm sunak trying to relax banking regulations . Bet the greedy t
t has shut up about that now.https://www.telegraph.co.uk/business/2023/03/18/sh...
For those who know more than me, it sometimes feels like the CBs and others stepping in to help out these smaller banks make things worse? Typically after something happens the markets seem to drop more, presumably because they are worried that it’s more serious than thought? Or is it more just speeding up the process we’d arrive at anyway and (hopefully) increasing confidence in the long term?
DeejRC said:
Whoozit said:
isaldiri said:
DeejRC said:
I’m amused at some of the responses on here about this.
Rather than 2008, this actually feels far more like 2011/12 and “peg” time.
The comparison with 08 is probably a little more relevant given the sudden concern gripping financial markets whether there is a wider systemic banking issue. The SNB doing whatever they want re the eur/chf peg in 2011 and in this case waving away rules to enable the ubs/cs merger (which they have been trying to engineer for a while) is somewhat of a sideshow....Rather than 2008, this actually feels far more like 2011/12 and “peg” time.
The SNB is the City of London - without morals.
As ever, we shall see what happens. Or to paraphrase the great Huggy Bear himself: it’s time to lay it out, for it all to play out.
If she's wrong however, I pity the individual bank that has Swiss-style boilerplate - as soon as the hedgies spot it, the AT1 price is toast and therefore the market will start suspecting a failure.
NRS said:
For those who know more than me, it sometimes feels like the CBs and others stepping in to help out these smaller banks make things worse? Typically after something happens the markets seem to drop more, presumably because they are worried that it’s more serious than thought? Or is it more just speeding up the process we’d arrive at anyway and (hopefully) increasing confidence in the long term?
You've got a good sense of the important issue 
in a crisis, the CBs can't really do much to fully turn around a suspected bank failure. It's a choice between least worst options. At the end, the aim is to increase overall confidence. Because if not, the nature of capitalism is it will hunt for the next suspected failure in order to make money/not lose money. DeejRC said:
I respectfully disagree with you both. I fully respect that the pair of you almost certainly know vastly more about the technical nature of international finance than I do, however, I contend this isn’t a finance thing. This is a power thing and the SNB is flexing its muscles and just doing what it wants, how it wants to get the situation it needs to exist - to happen.
The SNB is the City of London - without morals.
As ever, we shall see what happens. Or to paraphrase the great Huggy Bear himself: it’s time to lay it out, for it all to play out.
Depends on what you mean by 'this' as per above I guess. The wider unrealised bank losses from fixed rate holdings and inverted yield curve points to a wider overall issue in the sector, which manifested itself in SVB failing then CS running into serious trouble. The panic that initially set in the last week after that with the entire banking sector getting smacked with a very big shift to short term US treasuries last monday was at least slightly reminiscent of 08.The SNB is the City of London - without morals.
As ever, we shall see what happens. Or to paraphrase the great Huggy Bear himself: it’s time to lay it out, for it all to play out.
The SNB/Finma choosing to wipe out the CS AT1 bonds and/or essentially forcing CS to agree to a merger is a different thing. As capable as the SNB are, they haven't engineered the former to enable the latter whether as a power thing or not I'd say.
Edited by isaldiri on Tuesday 21st March 08:36
Whoozit said:
In the specific case of CS, you may be right! I understood from some of the overnight reporting that one reason the SNB insisted on/structured a payout to CS shareholders was to appease Swiss voters/retail shareholders. As it happens they relied on some specific wording in the AT1 terms, which Christine Lagarde has already come out as saying is not a feature in EU AT1 structures.
If she's wrong however, I pity the individual bank that has Swiss-style boilerplate - as soon as the hedgies spot it, the AT1 price is toast and therefore the market will start suspecting a failure.
For all the moaning from certain quarters AT1 was always a high risk thing, which is why the returns were so chunky. If she's wrong however, I pity the individual bank that has Swiss-style boilerplate - as soon as the hedgies spot it, the AT1 price is toast and therefore the market will start suspecting a failure.
If people didn't understand the terms and didn't recognise that the worse case might happen on a low tier bond that's their fault.
The situation has been badly handled but like so many of these situations (like uninsured deposits!) the hazard was always there.
For the initiated (read: me), I found the video here a good description of AT1s and how they fit into the capital framework
https://www.twentyfouram.com/insights/what-are-at1...
Predates this CS event
https://www.twentyfouram.com/insights/what-are-at1...
Predates this CS event
pquinn said:
Whoozit said:
In the specific case of CS, you may be right! I understood from some of the overnight reporting that one reason the SNB insisted on/structured a payout to CS shareholders was to appease Swiss voters/retail shareholders. As it happens they relied on some specific wording in the AT1 terms, which Christine Lagarde has already come out as saying is not a feature in EU AT1 structures.
If she's wrong however, I pity the individual bank that has Swiss-style boilerplate - as soon as the hedgies spot it, the AT1 price is toast and therefore the market will start suspecting a failure.
For all the moaning from certain quarters AT1 was always a high risk thing, which is why the returns were so chunky. If she's wrong however, I pity the individual bank that has Swiss-style boilerplate - as soon as the hedgies spot it, the AT1 price is toast and therefore the market will start suspecting a failure.
If people didn't understand the terms and didn't recognise that the worse case might happen on a low tier bond that's their fault.
The situation has been badly handled but like so many of these situations (like uninsured deposits!) the hazard was always there.
pquinn said:
For all the moaning from certain quarters AT1 was always a high risk thing, which is why the returns were so chunky.
If people didn't understand the terms and didn't recognise that the worse case might happen on a low tier bond that's their fault.
The situation has been badly handled but like so many of these situations (like uninsured deposits!) the hazard was always there.
AgreeIf people didn't understand the terms and didn't recognise that the worse case might happen on a low tier bond that's their fault.
The situation has been badly handled but like so many of these situations (like uninsured deposits!) the hazard was always there.
These Coco bonds were baned from retail for a reason, they were perpetual and somewhat complex, and could go to zero.
CS AT1 was paying 17% IIRC, so if those institutions who got wiped out had held them for 5-6 years they have just broken even.
SNB have taken a legal step (peculiar to Swiss AT1) to protect Swiss consumers/shareholders at the expense of big non-Swiss companies like PIMCO and Invesco, and you can sort of understand why
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