Credit Suisse, one of the world’s largest banks, has been warned by market strategist Greg Foss that it is at risk of collapse. Foss cited capital troubles and a run on the bank as reasons why he believes Credit Suisse will be the next major bank to fall. The decline in the bank’s wealth division has hit one of the institution’s key profit drivers, and Foss believed that the bank’s current market cap of 10 billion dollars for about a trillion dollars of assets is excessively low.
Foss warned that Credit Suisse is a systemically important financial institution, and if it gets into trouble, it risks dragging other institutions down with it. As one of the 30 banks identified as global systemically important banks (G-SIBs), this could cause widespread disruption to the global financial system.
Credit Suisse has been grappling with issues related to its finances and reporting controls. The bank published its 2022 annual report last Tuesday, in which it announced the identification of material weaknesses in financial reporting controls. The bank’s management was found to have failed to design and maintain an effective risk assessment process to identify and analyze the risk of material misstatements in its financial statements.
Shares of Credit Suisse plunged on Wednesday after its largest investor, Saudi National Bank, said that it could not provide more financial assistance to the bank. Saudi National Bank’s chairman, Ammar Al Khudairy, said that the bank could not provide more assistance because it would go above 10%, which is a regulatory issue.
The decline in Credit Suisse’s fortunes follows similar falls suffered by other major US banks, including Silicon Valley Bank and Signature Bank. Foss’ warning about Credit Suisse should be taken seriously given his background as a market strategist. He is currently executive director at Validus Power Corp and has worked as a managing partner for credit strategies at both GMP Investment Management and Marret Asset Management, a senior portfolio manager with a focus on credit strategies at Fiera Quantum, and VP of Fixed Income Trading at TD Securities.
Credit Suisse is not the only banking institution to have struggled recently. Last year, the COVID-19 pandemic caused widespread disruption to the global financial system, and many banks saw their profits decrease while non-performing loans increased. The situation has improved, but concerns remain about the ability of banks to manage risk effectively going forward. The warning from Foss that Credit Suisse is in trouble is a wake-up call for other financial institutions and underscores the importance of effective risk management to avoid future collapses.
The collapse of a major bank like Credit Suisse would have serious repercussions for the global financial system. The Financial Stability Board (FSB) has identified 30 G-SIBs, and Credit Suisse is one of them. These banks are considered too big to fail, and their collapse would have a systemic impact. The instability of one G-SIB can have a ripple effect on other banks, as Foss warned.
In conclusion, Credit Suisse’s troubles are a warning for other banking institutions to take their risk management seriously. The global financial system needs to be able to withstand shocks and avoid systemic collapses. Foss’ warning should not be taken lightly, and regulators and banks need to work together to ensure that the risk management frameworks in place can withstand the stresses and strains of the current financial landscape.