Online Investors Believe A Banking Titan Might Be On The Verge Of Collapse, Analysts Disagree. Here’s Why

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FILE PHOTO: Logo of Swiss bank Credit Suisse is seen in Bern

 

Online Investors Believe A Banking Titan Might Be On The Verge Of Collapse, Analysts Disagree. Here’s Why

John Hugh DeMastri on October 6, 2022

Shares of Swiss banking giant Credit Suisse have swung wildly this week, following online investors predicting that the struggling bank would soon collapse, a position questioned by traditional analysts.

Credit Suisse has been rocked by turnover amongst high-ranking executives and struggling business ventures that sent stock prices plummeting by more than 55% this year, however; there was no direct answer for why online investors on Twitter and Reddit were suddenly pessimistic about the banking giant’s business last Friday, The Wall Street Journal reported.

The company’s stocks plunged nearly 12% on Monday, but have since recovered, trading up to roughly 8% for the past five days, after Credit Suisse and traditional analysts issued a series of reassurances that the company had sufficient cash on hand to weather a financial storm.

Despite the fact that stock pessimism has slowed, the price of credit default swaps (CDSs), a type of contract where the buyer is paid if the company defaults on its debts, remains high, Vice reported. Higher CDS prices reflect investor’s belief that a company is more likely to default, since they believe they are willing to risk more purchasing the swap, on the assumption they will see a return on the investment.

The cost for five-year swaps was up nearly 80% Thursday compared to typical values seen in mid-September, accordingto Neil Unmack, a financial columnist at Reuters Breakingviews. Elevated prices may be a sign investors are hedging against the bank, and would likely return to normal if Credit Suisse was to acquire a significant amount of capital, quelling concern over the bank’s financial health, Unmack claimed.

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For Credit Suisse to default on its loans, it would need to go through nearly $100 billion in capital, ranging from cash and bonds to real estate, according to Axios. If the company is unable to convince investors of its health, investors may move their money, further weakening the bank’s image in the public eye.

Credit Suisse did not immediately respond to The Daily caller News Foundation’s request for comment.

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