Big Trouble for European Banking as Credit Suisse Flashes Warning Signs

Credit Suisse is currently fighting for survival following months of rumors regarding its liquidity and capital position. According to reports over the weekend, a negative outcome for the Swiss banking giant could have similar repercussions to the Lehman Brothers fallout, which triggered the 2008 financial crisis.

On Oct. 2, Reuters reported that bank executives have been attempting to reassure clients about its financial position. It was also reported that the bank’s market capitalization has fallen by more than half in just a year to around $10 billion today. Bank stock has also dumped 56% in a year to just under $4.

Furthermore, Credit Suisse’s five-year credit default swaps (CDS) jumped six basis points to close to 247 bps on Friday, this is their highest level in at least 10 years. A CDS is a financial agreement that the seller will compensate the buyer in the event of a debt default or other credit event.

$600 Billion: What Lehman Brothers held in assets when they crashed and took the economy with them.

$2800 Billion: What Credit Suisse and Deutsche Bank control in AUM. 4.6x more.

Credit Suisse is at a ‘Critical Moment’ now, says the CEO.

What lies in store for the world?🧵 pic.twitter.com/VIaMU7dSLX

— Graham Stephan (@GrahamStephan) October 2, 2022

Other reports suggest that Deutsche Bank could be in similar dire straits, as indicated by its stock performance over the past year.

Crypto Community Reacts

The crypto community has reacted to the news by pointing out that, yet again, banks are responsible for the financial calamity. On Oct. 3, Crypto YouTuber Lark Davis observed that Credit Suisse and Deutsche Bank have a lot of assets under management, and a collapse could trigger another financial crisis.

“They have 2.7 trillion in assets under management between them. This could be our “Lehman” moment when shit REALLY breaks.”

Other macro investment experts and analysts have offered their take on the banking quandaries suggesting it could bring down the entire European banking sector.

Is the European banking sector on the brink of a systemic crisis?

I have worked for a large European bank for 8 years – pockets of weakness and structural problems are undeniable.

But let’s look into some data to make a non-emotional assessment.

A thread.

1/

— Alf (@MacroAlf) October 2, 2022

The analyst concluded that the reason why Credit Suisse and Deutsche Bank are “getting hammered” is that “they belong to a very weak and cyclically exposed sector (European banks), and they suffer from additional idiosyncratic weaknesses.”

Earlier this year, CryptoPotato reported that leaked documents revealed Credit Suisse operated multiple accounts belonging to alleged criminals. Not surprisingly, though, executives from both banks have repeatedly berated Bitcoin and its brethren.

Crypto Markets Remain Bearish

Digital asset markets, meanwhile, have continued to retreat over the weekend, but they remain within a longer-term range-bound channel that began in mid-June.

Total market capitalization is at around $966 billion as both Bitcoin and Ethereum fell back during the Monday morning Asian trading session. At the time of writing, BTC was trading at $19,169 while Ethereum had dropped to $1,291.