Do you remember when wealthy people all over the world would stash their money in Swiss banks because there were so strong and so private? Well, the second-largest bank in Switzerland is literally on the brink of collapse.
As I discussed yesterday, Credit Suisse is a prime candidate to be one of the next dominoes to fall. It has been on very shaky ground for a long time, and now the global banking panic has greatly accelerated the outflow of assets from the bank. So why should you care if it fails? Unlike Silicon Valley Bank and Signature Bank, Credit Suisse is so critical to the worldwide banking system that it has officially been designated “as being systemically important by the international Financial Stability Board”…
A “too big to fail” bank has not collapsed in more than a decade.
If Credit Suisse does go under, the shockwaves will reverberate all over the planet. Even though Credit Suisse is now smaller than it once was, it is still vastly larger than SVB…
At this point, large European banks are holding mountains of such bonds, and that is truly an existential threat to the entire European banking system.
Unless emergency measures are implemented, a whole bunch of these institutions will inevitably implode.
As for Credit Suisse, the stock price hit yet another brand new all-time record low on Wednesday…
Shares of Credit Suisse on Wednesday plunged to a fresh all-time low for the second consecutive day after a top investor in the embattled Swiss bank said it would not be able to provide any more cash due to regulatory restrictions.
Trading in the bank’s plummeting stock was halted several times throughout the morning as it fell below 2 Swiss francs ($2.17) for the first time.
The cost of insuring the bonds of Credit Suisse Group AG against default in the near-term is approaching a rarely-seen level that typically signals serious investor concerns.
The last recorded quote on pricing source CMAQ stood at 835.9 basis points on Tuesday. Traders were seeing prices of as high as 1,200 basis points on one-year senior credit-default swaps Wednesday morning, according to two people who saw the quotes and asked not to be named because they aren’t public.
That is nuts!
But that is where we are.
Things have gotten so bad at the bank that employees are reportedly “crying” and having “meltdowns”…
When your employees are weeping uncontrollably, that is clearly a sign that your days are numbered.
But the good news is that an emergency rescue plan has been announced, and so there is hope that the bank can be stabilized…
Switzerland’s central bank said Wednesday it was ready to provide financial support to Credit Suisse after shares in the country’s second biggest lender crashed as much as 30%.
In a joint statement with the Swiss financial market regulator FINMA, the Swiss National Bank (SNB) said Credit Suisse (CS) met the “strict capital and liquidity requirements” imposed on banks of importance to the wider financial system.
“If necessary, the SNB will provide CS with liquidity,” they said.
Just like the emergency rescue plan that we just witnessed in the United States, this isn’t being called a bailout because people hate that word.
But that is what it actually is.
Unfortunately, there are several other European banks that may soon need bailouts as well…
The share price rout renewed a broader sell-off among European lenders, which were already facing significant market turmoil as a result of the Silicon Valley Bank fallout. Some of the biggest decliners included France’s Societe Generale, Spain’s Banco de Sabadell and Germany’s Commerzbank.
Several Italian banks on Wednesday were also subject to automatic trading stoppages, including UniCredit, FinecoBank and Monte dei Paschi.
In the weeks and months ahead, I expect central banks all over the world to wildly create money in a desperate attempt to prop up their most important financial institutions.
But just because these central banks can create an “infinite amount of cash” does not mean that they should actually do it.
When you create crazy amounts of money, it leads to crazy amounts of inflation.
Just ask Argentina. Right now, they are dealing with a triple-digit inflation rate…
Data released Tuesday showed annual inflation surpassed 100% for the first time since the early 1990s, bringing back memories of the hyperinflation that ravaged South America’s second-largest economy.
The United States and Europe are going down the exact same road.
And it is a road that we should not be too eager to travel.
In Venezuela, virtually everyone is a “millionaire” thanks to the rampant hyperinflation that has plagued that nation for years.
But just about everyone is also living in poverty because the money is almost totally worthless.
Having a stable currency is so important, and the U.S. dollar was once incredibly stable.
Unfortunately, our leaders have been treating our currency like toilet paper for many years, so it is just a matter of time before it has a similar value.
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