If you'd made the past few days at Credit Suisse into a movie, you might have opened with scene-setting shots of stock and bond traders looking pained, hands in their heads, neckties askew. There'd be scenes of frantic bankers spending all weekend on the phone with clients, assuring them everything is fine. A CEO would slowly sip a glass of Scotch, reading over a memo assuring employees the leadership is doing everything it can to avoid layoffs...
As a connoisseur of the Wall Street-in-crisis genre, I would have been all in.
But it looks like the real-life drama at the Swiss bank may not yield the cinematic crash we've come to expect in the shadow of the 2008 financial crisis.
Here's the thing: Speculation that Credit Suisse was about to collapse sparked a selloff on Monday, with the bank's shares hitting a record low. It took no time at all for investors and commentators to start speculating about whether Credit Suisse was the new Lehman Brothers — the first big Wall Street domino to fall in the subprime mortgage crisis, almost exactly 14 years ago.
That fear is understandable. When faced with a complex, scary problem, we tend to look to the past for solutions, hoping we can see now what we couldn't see then.
But, as my colleague Julia Horowitz writes, the hand-wringing over Credit Suisse says more about the market's ~mood~ right now than it does about the bank's financial position.
Credit Suisse has been battered by years' worth of scandals and fines. And there are still risks ahead. But it's far from bankrupt. One analyst even described Credit Suisse's liquidity position as "healthy."
That's partly why, by Tuesday, the panic was subsiding. Credit Suisse shares bounced back, along with the broader stock market.
"I do not think this is a 'Lehman moment,'" said Mohamed El-Erian, an adviser to Allianz, on CNBC Monday.
BIG PICTURE
It's not hard to see why investors would be triggered by Credit Suisse's latest wobbling, triggered by a memo from the CEO that, rather than assuaging nerves, made people worry the bank was on even less solid footing than it seemed.
Combine that anxiety with the related anxiety of a looming global recession and chaos in UK bond markets and you've got yourself a big ol' anxiety smoothie.
Everyone on Wall Street wants to get ahead of the next big risk, remembering that it doesn't always come from where you'd expect. (Few saw the dangers in the subprime mortgage trade that predicated the implosion of the housing market in 2008, for example.)
The devil is always in what you don't know, and Credit Suisse, for all we know, could be exposed to risks that the market doesn't know about, according to José-Luis Peydró, a professor of finance at Imperial College Business School.
The silver lining: We didn't emerge from 2008 without some guard rails. Large banks have much higher capital requirements to meet now than they did before the crisis, which should reduce the risk of contagion from any one failure.
Credit Suisse is far from insolvent, but even if things do go from bad to worse, it'd be unlikely to take the whole ship down with it.
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