Credit Suisse Default Swaps Surpass 2008 Crisis Level; Firm To Sell U.S. Asset Management Arm
Credit Suisse has been hitting the headlines but probably not for the right reasons. According to a source familiar with the situation, the firm recently initiated a process that could result in the sale of its U.S. asset management arm, as the ailing Swiss bank looks to reorganize its business following repeated scandals.
However, the bank might be in deeper trouble than it seems. Credit Suisse leads a host of Wall Street banks that have their credit default swaps surpassing its peak in 2008-2009–prominently known as the period of the housing bubble crisis.
Adding fuel to the fire, the Swiss National Bank swapped billions from the US Federal Reserve–to the tune of $6.27 billion, its largest swap in recorded history. Twitter user Deer Point Macro relates this to the massive widening within the Swiss franc-US dollar cross-currency basis swap.
Hayman Capital Management CIO Kyle Bass even puts this amount at $10 billion for the last two days.
All these put the sale of Credit Suisse’s US asset management arm in perspective. Potential purchasers’ initial indications of interest are expected by the end of this week, according to the source, who spoke on the condition of anonymity to disclose private information.
Due to heavy competition from major managers and a compression on fees from the transition to passive investing, a number of banks have liquidated asset management divisions in the United States in recent years. Wells Fargo & Co and Bank of Montreal announced plans to abandon such activities in 2021.
Sale after sale
The report comes in after the Swiss bank was reportedly planning to sell parts of its Swiss domestic bank in order to address a capital hole of roughly 4.5 billion Swiss francs ($4.48 billion), according to the Financial Times.
The newspaper added that a stake in the SIX Group (which runs the Zurich stock exchange), an 8.6% stake in Madrid-based tech company Allfunds, two specialist Swiss banks, Pfandbriefbank and Bank-Now, and Swisscard, a joint venture with American Express are among the parts being considered for sale.
The bank is also attempting to sell its famous Savoy Hotel, which is located on Paradeplatz in Zurich’s financial area. The finance site Inside Paradeplatz reported the hotel might be worth 400 million Swiss francs.
On top of this, the bank group agreed to pay $495 million to settle the largest remaining complaint over its role in the sale of residential mortgage-backed securities in the United States, which contributed to the 2008 financial crisis.
In a statement issued on Monday, the Swiss bank stated that it is “fully provisioned” for the payment, which will settle claims related to more than $10 billion in such securities. In a related lawsuit, initially filed in 2013, the Attorney General of New Jersey sought $3 billion in damages.
A source with firsthand knowledge of the situation told Reuters in September that Credit Suisse is also considering reducing approximately 5,000 jobs across the firm as part of a cost-cutting campaign.
It’s worth noting that most conjectures are still unconfirmed, as Credit Suisse declined to comment.
According to the bank’s website, Credit Suisse’s asset management business managed around $447 billion globally and employed nearly 1,200 people as of June 30. It provides both classic products like mutual funds and nontraditional investments like real estate and private equity.
Information for this briefing was found via Reuters, Bloomberg, Financial Times, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
