Credit Suisse Lending Clients Spooked By Swiss Bank Financial Health Concerns

Zinger Key Points
  • Credit Suisse has made borrowing clients aware that some counterparties have temporarily suspended deals with the bank.
  • Several investors have approached Credit Suisse to inquire about the risks they are taking on regarding the bank itself.
Credit Suisse Lending Clients Spooked By Swiss Bank Financial Health Concerns

Credit Suisse Group CS shares have been volatile this week amid ongoing concerns over the Swiss bank's financial health. Now it appears some of the firm's lending clients are pulling back.

What Happened: One of Credit Suisse's lending businesses has reversed some share lending transactions in recent days following concerns over the bank's financial health, per Bloomberg

According to people familiar with the matter, Credit Suisse has made borrowing clients aware that some counterparties have temporarily suspended deals with the bank because of "mounting market pressure," which has forced it to withdraw available shares.

The Credit Suisse lending unit reportedly saw less than 5% of the total pool pulled, and there was no funding impact for the lender. The Swiss bank really just acts as a middleman for securities lending deals, but the report indicated several investors have approached Credit Suisse to inquire about new risks.

Reports that suggested Credit Suisse could be battling liquidity issues sent the lender's shares spiraling lower Monday morning before reversing and turning positive for the session. The Swiss bank's credit default swaps, which provide investors with protection against financial risks and essentially measure how a company's financial health is perceived by the market, soared to record levels

Related Link: As Credit Suisse's Credit Default Swaps Spike To Near 2008 Levels, Rumors Of Lehman-Like Collapse Floated, Bank Steps In To Allay Concerns

Why It Matters: Credit Suisse has faced questions over its risk management practices in the past. The bank has been plagued by a string of scandals and most notably took a $5.5-billion hit following the collapse of U.S. investment firm Archegos Capital.

In the company's most recent quarter, Credit Suisse reported a net loss of approximately $1.6 billion, which was down from earnings of more than $250 million year-over-year, according to Benzinga Pro.

Now Credit Suisse is considering turnaround plans. The Swiss bank recently said it's in the process of a strategy review that includes potential divestitures and asset sales.

The strategic review aims to ultimately strengthen Credit Suisse's wealth management franchise and transform the investment bank into a capital-light, advisory-led banking business with an increased focus on markets.

Credit Suisse is also evaluating strategic options for its securitized products business, which includes attracting third-party capital and reducing the firm's absolute cost basis. 

Credit Suisse is scheduled to announce its third-quarter financial results on Oct. 27. The bank said it will provide further updates on its comprehensive strategic review in connection with its quarterly results.

CS Price Action: Credit Suisse has a 52-week high of $1.04 and a 52-week low of $3.70.

The stock was up 12.22% at $4.50 Tuesday at market close, but after-hours was trading down 0.44% at $4.48.

Photo: Fred Romero from Flickr.

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