(Bloomberg) — The cost of insuring the bonds of Credit Suisse Group AG against default in the near-term is approaching a level that typically signals serious investor concerns.
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One-year credit default swaps for the embattled Swiss lender were indicated at 835.9 basis points on Tuesday’s close of business, based on pricing source CMAQ. Other pricing sources point to a further rise on Wednesday, while a level of 1,000 would indicate serious concern. The current level is about 18 times the one-year CDS for rival Swiss bank UBS Group AG, and about 9 times the equivalent for Deutsche Bank AG.
The CDS curve is also deeply inverted, meaning that it costs more to protect against an immediate failure at the bank instead of a default further down the line. The lender’s CDS curve had a normal upward slope as recently as Friday. Traders typically ascribe a higher cost of protection over longer, more uncertain periods.
Credit Suisse is in the midst of a complex three-year restructuring in a bid to return the bank to profitability. It was hard hit by the recent wave of bearishness triggered by Silicon Valley Bank’s demise, with its five-year CDS spreads hitting a record. Shares hit a new record low Wednesday after the bank’s top shareholder ruled out providing more financial assistance to the struggling Swiss bank, citing regulatory constraints.
Chief Executive Officer Ulrich Koerner said in a Bloomberg Television interview on Tuesday that business momentum improved this quarter and that the bank attracted funds after the collapse of SVB.
As a systemically important bank, Credit Suisse follows “materially different standards” in terms of capital strength, funding and liquidity than lenders such as SVB, Koerner said. He said the lender had CET1 capital ratio of 14.1% in the fourth quarter and a liquidity coverage ratio of 144% that has since increased.
“The other point is, the volume of our term fixed income securities as part of our HQLA portfolio is absolutely not material,” he said, referring to the bank’s holdings of high-quality liquid assets. “And the exposure to interest rates is fully hedged on top of it.”
Outflows of client money, which were at unprecedented levels in early October amid a social media firestorm that questioned the bank’s health, haven’t reversed as of this month, though have stabilized at much lower levels, according to Tuesday’s annual report.
Chairman Axel Lehmann said Wednesday that government assistance “isn’t a topic” for the lender and that it wouldn’t be accurate to compare the Swiss bank’s current problems with the recent collapse of SVB. He was speaking at the Financial Sector Conference in Saudi Arabia.
–With assistance from Dale Crofts.
(Updates with chart, Credit Suisse liquidity comments, more context.)
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