Two major European banks are rumored to be in trouble with potentially massive ramifications for crypto and wider markets.
The strength of both Credit Suisse and Deutsche Bank have recently been called into question by financial analysts and crypto commentators alike, with the Swiss bank a particularly hot topic of discussion.
Credit Suisse faces “challenging” period
In an attempt to calm nerves at Credit Suisse, Chief Executive Ulrich Koerner sent a memo to employees last week, but the memo was subsequently leaked to Reuters on Friday and backfired spectacularly.
In the disaster memo Koerner says “this is a critical moment for the whole organization” as well as a “challenging period,” but adds that the bank is being reshaped towards a “long-term, sustainable future.”
The problem for Koerner and Credit Suisse is that in order to reshape the Swiss bank, the company will require extra investment and fresh capital, and at the moment the bank doesn’t look like the solid investment it once did.
On Monday, the price of Credit Suisse shares (CSGN) fell 11% when the markets opened, contributing to a 59% drop since the start of the year. This accelerates a long and gradual period of decline for CSGN which is now down 91% from its 2007 peak.
It is ironic that the rapid devaluation of CSGN shares this week may have been sparked by Koerner himself. In his memo Koerner argued that much of the concern in the media and the markets was more noise than signal.
“I know it’s not easy to remain focused amid the many stories you read in the media – in particular, given the many factually inaccurate statements being made. That said, I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank,” he said.
This caused Spencer Jakab of the Wall Street Journal to compare the hubris of Credit Suisse to the Lehman Brothers before their 2008 collapse.
Jakab took to Twitter to say, “it’s a bad look and counterproductive when bank execs make statements about the market being wrong. In this particular business, the market’s opinion can be self-fulfilling at times of stress.”
According to Jakub, CEOs of big banks can induce additional financial pressures by seeming to ignore or dismiss market sentiment and concerns.
“Herr Korner, two whole months into the job of big bank CEO, is tempting fate by saying the market is wrong,” says Jakab.
On Saturday, a report by IP Banking Research published in Seeking Alpha pointed out that both Credit Suisse and Deutsche Bank were now trading at distressed valuations, although of the two Deutsche Bank remains in better shape.
“Credit Suisse (CS) is currently trading at 0.23x tangible book. Deutsche Bank (DB) is trading at 0.3x tangible book value. These are very distressing valuations for banks, even so for European banks,” said IP Banking Research.
This means that the two banks’ shares are trading below the value of their company assets were they to be liquidated.
So how is crypto taking the news?
There is almost nothing that crypto Twitter users like to talk about more than trouble in traditional financial markets, even if the institutions themselves, such as Credit Suisse, have been known to be cautiously positive about digital currencies.
It is hardly surprising therefore that crypto commentators were lining up to take pot shots at the bank and its current woes this weekend.
“Credit Suisse is probably going bankrupt,” Wall Street Silver told his 320,000 followers on Saturday, summing up the general sentiment. “Markets are saying it’s insolvent and probably bust.”
An account called Inflation Tracker was even more dramatic on Monday as it summed up the size of any potential problem.
“Lehman Brothers had $600 billion in assets when they collapsed and died. Credit Suisse has $2,800 billion in assets. If you thought 2008 was bad just wait. Global financial markets on brink of insolvency. Credit markets about to get shut down,” it said.
Meanwhile, JAN3 founder Samson Mow was reassuring his followers that the bottom for Bitcoin is already in.
Mow said the Bitcoin price “is already pushed down to the limit, well below 200 WMA. We’ve had contagion from UST/3AC and leverage flushed already. BTC is massively shorted as a hedge. Even if Credit Suisse / Deutsche Bank collapse & trigger a financial crisis, can’t see us going much lower.”
Even with such unshakable confidence in BTC, Mow went on to joke, “Famous last words.”
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