By Stan Szymanski
Fixed income markets in the UK were in the midst of a horrific sell off last week, the likes of which has not been seen in over 60 years when the Bank of England stepped in and began a program of temporarily buying long dated bonds in order to tranquilize and steady the disarray ushered in by the new ‘mini-budget’ by Liz Truss’ government.
This buying of bonds by the ‘empire’ of King Charles III halted a blood bath in the bond market, at least for a time. The UK economy is all but a basket case that serves as an indicator as well as a distraction to another ‘canary in the coal mine’-Credit Suisse.
Spreads on the Credit Default Swaps (CDS) of Credit Suisse rose 6 basis points (bps) to 247 bps, the highest level in at least 10 years according to S&P Global Market Intelligence data (10 years ago the markets were still felling the ripples of ‘The Great Recession’). The CDS of the company began the year with a spread of just 57 bps. The widening of the spread in the security indicates a lowering of the creditworthiness and even the greater the possibility of a default of the concern.
Credit Suisse ran into trouble over the last two years when it lent money to Greensill, a supply chain accounts receivable lender who bankrupted in 2021 after CS had invested $10 billion of client assets. Shortly thereafter the trouble multiplied when Credit Suisse invested $30 billion with manager Bill Hwuang of Archegos, who had bet heavily on ViacomCBS. When ViacomCBS cratered, Archegos also bankrupted when it could not cover the losses incurred, resulting in a $5 billion loss for Credit Suisse. These catastrophic failures left Credit Suisse holding the bag.
Late last week the CEO of Credit Suisse Ulrich Koerner opined in a memo to his company that CS has sturdy credit and solvency.
…"I know it's not easy to remain focused amid the many stories you read in the media – in particular, given the many factually inaccurate statements being made. That said, I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank," he wrote, adding that he was unable to share details of transformation plans before Oct. 27.’…
Note Mr. Koerner’s emphasis on ‘the strong capital base and liquidity position of the bank’. The only people who feel the need to tell everyone how strong that they are usually in an inherently weak position.
Executives of financial institutions in trouble have played this song for us before.
Former Lehman Brothers CFO Ian Lowett 5 days before the firm filed for bankruptcy:
…‘Our capital position at the moment is strong’…
5 days later the firm is insolvent and filing bankruptcy. Now, I am not claiming to know the true nature of the problems at Credit Suisse, but when current statements start to rhyme with disastrous events of days gone by, I can’t help but to think that we have have heard this tune before.
In that light of this, you need to do the best you can to protect your assets by considering investing in precious metals, tangible assets as well as food and water amongst other things. This is not financial advice. Consult your financial advisor.
In the midst of falling global asset values, raging inflation and world economies rolling over, in my humble opinion, I believe that ‘the song remains the same’.
Please suffer me a short poem:
There once was a bank of world wide fame
Who was one of the best at playing the game
Who told everyone that the money was good
And to keep it in their coffers just as they should
But when a worldwide famine of trust had arose
And the standing of bankers became only a pose
In the end the banks’ numbers had come up lame
And for all the people The Song Remains The Same
———-
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Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice
