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Credit Suisse's default insurance cost surges to record high as SVB collapse raises contagion fears

Updated: Mar 15, 2023

The collapse of Silicon Valley Bank has sent shockwaves through the banking industry, with Credit Suisse Group AG among those affected. The cost of insuring Credit Suisse's bonds against default has climbed to the highest on record, reaching 453 basis points for five-year credit default swaps. The bank's shares also tumbled as much as 15% to a new record low.

Investors were already concerned about Credit Suisse's ability to put in place a restructuring plan that involves pivoting towards private lending, hiving off large parts of the investment banking business, and reducing costs by cutting 9,000 jobs. Earlier this month, Credit Suisse announced that it was delaying the publication of its annual report following a last-minute query by US regulators over previous financial statements.

Picture: Kumaon Jagran

The bank is also grappling with departures across departments, with at least a dozen private bankers at the managing director-level and above leaving in Singapore and Hong Kong since September, or planning to do so. This has complicated efforts to win back assets and raised pressure on wealth head Francesco De Ferrari, who joined just over a year ago.

The widening of Credit Suisse's credit default swaps comes amid broader concerns about contagion in the banking industry. Shares of European banks and insurers slumped on Monday, and the CDS of 125 European high-grade companies tracked by a Bloomberg index widened the most.

Despite these challenges, Credit Suisse remains committed to its restructuring plan. CEO Thomas Gottstein has said that the bank is focused on executing the plan and is confident in its ability to do so.

However, investors and analysts remain skeptical. Some have raised concerns about Credit Suisse's risk management practices, given the bank's involvement in the collapse of Archegos Capital Management and the Greensill Capital scandal. Others have questioned whether the bank's restructuring plan is ambitious enough, given the challenges facing the industry.

Credit Suisse's leadership will need to navigate these challenges carefully if they are to restore confidence in the bank and win back investors.

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