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Credit Suisse finds ‘material weakness’ in reporting, scraps exec bonuses
- orangepurple 4y agoThis is the foreshock that occurs before the larger seismic event and they are washing their hands clean so they aren't criminally liable when the organization fails later this year. Look at the Credit Suisse 5 year CDS chart so see how the market is pricing their risk.
- trillic 4y agoThe CDS market is pricing in an approximately 10% chance of $CS failing in the next year.
- SeanAnderson 4y agoI'm surprised it's only 10%. This morning was a very strong rally for beleaguered banking stocks and CS didn't budge an inch.
- bushbaba 4y agoBecause credit Susie is “to big to fail” with the CDS likely pricing in the change of a government bail out
- topper-123 4y agoEven if if doesn’t fail, the shareholderd might be wiped out though.
- HDThoreaun 4y agoShareholders being wiped out doesn't affect bond holders.
- latchkey 4y agoWhat if bond holders are shareholders?
- rblatz 4y agoTheir share value will be wiped out, and their bonds won’t be.
- warbaker 4y agoUsually bondholders are also wiped out during a bailout. Bailouts are generally for customers / counterparties, not investors. Sometimes in a bankruptcy, bondholders take a "haircut" and agree to get less money back because the company simply can't pay them what they're owed.
- alexpetralia 4y agoOut of curiosity, how did you calculate this?
- a4a4a4a4 4y agoNot the person you're replying to, but you can calculate the "implied volatility" using the current option pricing vs the current stock price. As the consensus of price movement (up or down) increases, the option prices go up. https://www.optionsplaybook.com/options-introduction/what-is-volatility/ https://www.optionsplaybook.com/options-introduction/what-is...
- FormerBandmate 4y agoCredit default swaps pay the full value of a bond when a bond defaults, and pay nothing when it doesn’t. If a 1-year CDS is 10% of face value there’s a 10% chance of default in a year
- mason55 4y agoI'm not a quant or banker but I don't think that's true. When a credit event is triggered, there's an auction for recovery of the defaulted bonds/loans, and then recovery is what's left from par. In addition, you have to take net present value of the settlement into account. Money compounds, it doesn't grow linearly. Let's say there's a 10% chance of a credit event in a year, a 0% chance today, and the chance grows linearly (27 bps/day). Even if the chance of a credit event grows linearly, and you hold the recovery rate steady, the net present value of the recovery amount grows as a function of e. All that to say, I don't think what you are saying is correct. See here for the correct formula: https://news.ycombinator.com/item?id=35154072 https://news.ycombinator.com/item?id=35154072
- trillic 4y agoImplied probability of default over a given time-span can be approximated with the equation P = 1 - ( e ^ ( ( -S * t ) / ( 1 - R ) ) where S is the CDS spread and R is the recovery rate. The spread can be solved using the inverse S = ln ( 1 - P ) * ( ( R - 1 ) / t ) Probabilities and rates are both expressed as percentages not basis points. S is the spread. t is years. R is the recovery rate. Source is my notes from undergrad. Options, Futures, and Other Derivatives (9th Edition) by John C. Hull. Take all this with a grain of salt as I am not a quant. (but I am looking for a job!) Doing some additional reading, there are some more precise approximations but they are less general.[1] Last number I was able to pull up the $CS CDS was trading at 551 BP. Up from 446 yesterday (an all-time high for $CS) Lehman Bros hit 640 BP just days before collapse. [1] https://quant.stackexchange.com/questions/15986/how-to-compute-the-implied-probability-of-default-from-a-cds-spread https://quant.stackexchange.com/questions/15986/how-to-compu...
- CSMastermind 4y agoI've been hearing for 9 months now that people think they're going under but I haven't heard a concise explanation of why. Can someone with more knowledge of the situation provide one?
- JumpCrisscross 4y ago> Can someone with more knowledge of the situation provide one? They lost money on Archegos and Greensill, had a run in November, have run through a bizarre set of CEOs (one had a PI follow a wealth manager who was suspected of defecting) and generally been the poster child of big bank mismanagement.
- mattbrewsbytes 4y agoI think part of it is general laypeople (like myself) think Archegos and other failures we've heard about are in the past. I wonder if the reality is that Credit Suisse (or other banks) still hold onto whatever losses resulted from those failures and then try various things to shore up/mitigate those losses as a business should do. When they've exhausted those various methods and/or the value of other assets (securities, bonds, bundles of loans aka MBS, etc.) have gone down dramatically then their balance sheet is a mess. There could be a point of no-return somewhere along the line if they've been horribly mis-managed and taking on or permitting customers to take on too much risk. That point of no-return might mean contagion to other banks/financial firms.
- skrtskrt 4y agothey're also the poster child - over many decades - of letting fraudulent/organized crime money run through their systems, with the associated lack of controls and morals that comes along with that
- Iwan-Zotow 4y agoPecunia non olet
- pjc50 4y ago
- ren_engineer 4y agoyeah, there have been rumors about Credit Suisse for close to a year. They are in bad shape, along with plenty of other big banks
- psychlops 4y agoWhy do you believe there is hope of criminal charges? All indications show that banks simply get propped up and the incompetence remains unpunished.
- pulse7 4y agoCredit Suisse shares are at an all-time-low today...
- trosi 4y agoYou could print that statement and hang it on the front door, cause it's been true almost every day of the past few months
- mhh__ 4y agoThe joke is supposed to be when the shit hits the fan the question is not if CS lost money but where they lost money
- omgomgomgomg 4y agoThe UBS id doing just 20% better.
- curiousgal 4y agoTangent: I guess the silver lining in proofreading mistakes is that the content wasn't generated by ChatGPT.
- expertentipp 4y ago> setting aside 1 billion Swiss francs ($1.1 million). Billion, million, googol, whatever. For CNN and Swiss bankers it doesn't make difference. Executives assuring that everything is all calm and orderly means how many breaths it has left?
- moffkalast 4y agoI mean it's a billion CHF, Michael, what could it cost? 10 dollars?
- expertentipp 4y agoI'm afraid we have bad news for dollar-speaking investors, sir.
- TheCleric 4y agoThere's always money in the banking stand.
- withzombies 4y agoIs this one of those billion = long million mistakes in some languages? Not everyone agrees that a billion is 1000 million and it can get really confusing sometimes. > Other countries use the word billion (or words cognate to it) to denote either the long scale or short scale billion. (For details, see Long and short scales § Current usage.) > Milliard, another term for one thousand million, is extremely rare in English, but words similar to it are very common in other European languages. https://en.wikipedia.org/wiki/Billion#:~:text=Other%20countries%20use%20the%20word%20billion%20%28or%20words,it%20are%20very%20common%20in%20other%20European%20languages https://en.wikipedia.org/wiki/Billion#:~:text=Other%20countr....
- steponlego 4y agoContagion is spreading now. It’s interesting that we’re calling it “contagion” isn’t it? I think the real problems are deeper, like cancer, and it’s systematic. This isn’t just a light cough with some sniffles. We’re talking a body riddled with pus-filled tumors.
- jimnotgym 4y agoExcept this was a disease spread deliberately in order to make more money
- mnd999 4y agoThat’s the normal state of things in Wall Street. Do whatever you can to make money, greed is good etc. They’re not fools though, it only works if there’s some truth in it.
- mr_00ff00 4y agoNot to defend Wall Street, but people act like “greed is good” only applies to them. You would have to be blind to not see every industry and person, from execs to engineers, seeing greed is good. I mean, weren’t 400k+ google engineers unionizing? Are the start-up craze of the past 10 years and crypto craze in 2020 just a bunching of people trying to get rich quick?
- salawat 4y agoI wouldn't call 400k google engineers unionizing "greedy". I'd call it a response to greed.
- losteric 4y agoMaybe that is the disease? greed, sociopathy... money worship
- timcavel 4y ago[dead]
- JCM9 4y agoCS has had a range of challenges with its leadership and operational practices for years. This is just the latest in a string of events, some of them borderline just bizarre, calling into question the competency of the bank’s leadership its and long term direction.
- hnthrowaway0315 4y agoOn a side note I think I figured out part of Fed's plan. Basically the key is to stimulate inflation so that they get the chance to hike rates. By doing so many people choose to stop investing in stocks, funds and more on longer term saving accounts. Essentially this heals the asset-liability structure of financial institutions. They now have liabilities of longer term so they can issue longer term loans. This eventually will stimulate real economy.
- vuln 4y agoIncrease inflation to remove more money from the system and encourage the _correct_ investment at the moment will eventually stimulate the economy?
- slv77 4y agoPricing is the primary economic signal that guides investment in a capitalist system. When inflation runs too high the pricing signals break down as the result of speculation and hoarding. That can lead to malinvestment. Historically the Fed’s job was to “take away the punch bowl” and wring the bad debt and malinvestment out of the system before it became a systemic risk. Since 2008 the system has primarily focused on how to move the bad debt around to avoid default.
- VHRanger 4y agoThe fed respond to inflation *AND* unemployment rate, and they respond to their own forecasts of those things. The fed didn't stimulate inflation by choice. The rates were at 0 for most of the decade and inflation was very low. Increasing interest rates was a response to inflation -- partially created by QE and stimulus spending, supply chain disruptions, and other supply/demand shifts. As for how interest rates work: they make borrowing more expensive. There's a bunch of second-order effects from that but borrowing cost and time value of money are the main thing to keep in mind.
- ROTMetro 4y agoThe Fed wants to push unemployment. To save the economy previously they injected tons of money and need Billionaires and big businesses (because the injection process is not directed to your average mom and pop) to use that money. Now that they need to reduce money, they take away jobs for the working class. Nice system. Free government money to some and government pushing for you to lose your job for others, the two levers the Fed loves.
- gadders 4y agoThe thing is with the big Swiss banks like UBS, Credit Suisse etc is they regularly oscillate business models between "We are a full service universal bank" and "We are a private bank with a bit of investment banking attached to keep our HNWI clients happy." Where they are in that cycle typically depends on how much money investment banking/trading made over the previous year or two.
- janeway 4y agoCredit Suisse is a investment bank. UBS is a typical personal bank for majority of Suisse people and they also offer a few personal investment options. They have a separate investment side.
- gadders 4y agoCredit Suisse has a large private banking/wealth management function as well as an investment bank.
- Wonnk13 4y agoI've been watching this firm slowly die via a thousand self inflicted wounds since 2016. I wish someone had the courage to just close up shop instead of barely limping along.
- balozi 4y agoI understand 'material weakness' to mean falsified/faked/misleading/corrupted. 1) what happened to basic language?, 2) do the legal/PR people using these words honestly believe they are fooling anyone?
- Red_Leaves_Flyy 4y agoJust the commoners. Blue collar and lower social status folks would riot if they knew the full extent of what white collar crime lords get away with.
- hef19898 4y agoThey wouldn't. Proof: Nobody cared about Cum-Ex. Nobody revolted after 2008 neither.
- SCUSKU 4y agoI wouldn't say nobody, you did have the Occupy Wallstreet protests after all. That said, it wasn't the French Revolution...
- Red_Leaves_Flyy 4y agoNobody cared or the proletariat was coincidently not shown? this scandal seems to have been completely swept under the rug lending my argument credence. Also, were you living under a rock during occupy? These movements got systematically infiltrated and dismantled by Fed’s using obscene methods, like getting suspects pregnant. It’s unlikely we’ll ever actually know how bad their methods were because they were successful at forcing people back underground. Make no mistake though, these people are still around and still agitating, they’re just smarter now.
- bryceacc 4y ago>dismantled by Fed’s using obscene methods, like getting suspects pregnant do you have a source? this sounds nuts
- duxup 4y agoI assume this is the step you take before firing them as a shot across the bow to quit or otherwise go away?
- IG_Semmelweiss 4y agoI feel like this started with the US-accounts fishing expedition that was started by a disgruntled Manager in the Swiss banking side. Banking in switzerland has not been the same since. And US citizens are effectively kryptonite for swiss banks too.
- MrMan 4y agoIf there is any bank that should be dismantled it’s CSFB but it’s survived this long by getting big enough that regulators are afraid to break it up
- macinjosh 4y agoESG is such a money maker though, how could this happen. /s
- korginator 4y ago"We lied". There, summarised their public relations spiel for you.