Credit Suisse Default Risk Surges... CDS Spread Hits All-Time High

Credit Suisse 1-Year Senior Bond CDS Spread Soars
[Image Source= Bloomberg]

[Asia Economy Reporter Park Byung-hee] The credit default swap (CDS) rate of Swiss bank Credit Suisse soared to an all-time high, major foreign media reported on the 3rd (local time). CDS is a derivative product that separately trades the default risk of bonds, and a rise in the CDS rate means that the default risk of the company issuing the bond is increasing.

On that day, Credit Suisse's 5-year maturity CDS rate rose by more than 1 percentage point in one day, trading at an intraday high of 3.5%.

Earlier, on the 30th of last month before the weekend, Credit Suisse's 1-year maturity CDS rate surged nearly 4 percentage points in one day, trading at around 5.5% intraday. The current CDS rate is higher than during the 2008 global financial crisis.

Foreign media reported that during the weekend, senior executives of Credit Suisse were busy making calls to investors and clients to explain Credit Suisse's capital situation. Credit Suisse also issued a statement on the 2nd saying there were no problems with its funding situation.

Credit Suisse suffered large losses last year due to the British financial company Greensill Capital and the US hedge fund Archegos Capital Management incidents. In particular, the Archegos-related loss amounted to 4.4 billion Swiss francs (approximately 6.3538 trillion KRW), the largest in Credit Suisse's 166-year history. The Archegos loss led to the resignation of Brian Chin, head of the Investment Banking (IB) division.

Amid last year's large losses, concerns are growing that this year's performance in the core IB sector will be weak. This is because the demand for mergers and acquisitions (M&A) and corporate financing has sharply declined due to interest rate hikes. Analysts say that the recent sharp fall of the British pound amid overlapping negative factors has triggered investor anxiety, leading to the surge in Credit Suisse's CDS.

Credit Suisse plans to announce its third-quarter earnings on the 27th and disclose restructuring plans. It is expected to include thousands of layoffs and cost-cutting plans of up to 1.5 billion Swiss francs. There are also forecasts that Credit Suisse will advance the restructuring announcement to calm market anxiety.

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