By Geoffrey Smith
Investing.com -- Credit Suisse stock slumped at the open in Zurich on Monday and the cost of insuring its debt against default exploded, after reassurances from the bank's senior management over the weekend failed to calm fears about its stability.
By 03:50 ET (07:50 GMT), Credit Suisse (SIX:CSGN) stock was down 9.4% at a new all-time low, while traders said its five-year credit default swaps, which track the cost of insuring its debt against default over the next five years, had risen to an all-time high of around 350 basis points, according to some quotes.
Credit Suisse is struggling to overcome a number of heavy blows to its business over recent years. In addition to heavy losses on its exposure to failed finance firms Archegos Capital Management and Greensill Capital, there have been a number of reputational setbacks, notably in the form of a spectacular bust-up between then-CEO Tidjane Thiam and his star wealth management head Iqbal Khan. Thiam left the bank in disgrace, while Khan subsequently defected to cross-town rival UBS (SIX:UBSG).
The most recent speculation has revolved around fears that it may be on the wrong side of derivative trades tied to long-term interest rates, which have rocketed higher in the last couple of weeks.
Chief executive Ulrich Koerner, who is set to announce a major restructuring of the fallen Swiss giant later this month, had written to staff on Friday reassuring them that the bank's balance sheet is strong enough to withstand the current volatility. Financial News said Credit Suisse documents point to a capital buffer of $100 billion and expectations that its core capital ratio, a measure of financial strength, will remain well above regulatory minimums at between 13% and 14% for the rest of the year.
“The bank is currently executing on a number of strategic initiatives including potential divestitures and asset sales," Koerner said in his memo. “The aim is to create a more focused, agile group with a significantly lower absolute cost base."
News of the memo, amplified and exaggerated on social media, had already sent CS's stock and CDS into a tailspin on Friday.
The Financial Times reported on Monday that Koerner and other senior management had spent much of the weekend making similar assurances to the bank's biggest investors, while the Daily Telegraph reported that U.K. regulators had been in touch with their Swiss counterparts over the situation at the bank.
The Telegraph said the Bank is "satisfied that there have been no major recent developments and that speculation was driven by Mr. Koerner’s statement."
"Investors need to get more tangible facts about the restructuring to calm down," analysts at Bank Vontobel wrote to clients.
The selling was in part driven by anticipation that the bank will need to raise fresh capital through a share issue which - at present rates - would be extremely dilutive for existing shareholders. For that reason alone, analysts expect Koerner to focus on asset sales first.