Brief
Credit Suisse is no more. Loosely called a ‘buyout,’ Credit Suisse was purchased by UBS for 3 billion in equity after 17 billion in junior bonds get written off to 0, and the Swiss national bank put themselves on the hook for billions of dollars in losses to get UBS to take the deal at the purchase price. In the US, First Republic Bank is still teetering on the edge of existence.
The banking crisis headlines have predictably awoken the Russian disinfo machine. Russia is now using this crisis to try and cut military and financial support for Ukraine.
Credit Suisse
Credit Suisse is a disaster at least a decade in the making.
Credit Suisse came through the 08 crisis without a government bailout. Where other banks retreated from investment banking, Credit Suisse doubled down in the ensuing decade. Investment banking is inherently risky and relies, first and foremost, on talented employees to creatively find both new deals and monitor risks that can come from anywhere on a massive scale. Unlike other professions, a major mistake by one person in Investment Banking costs more money than a division makes in a year and possibly more than the entire bank makes in a year.
“The Fish Rots from the Head” as the Russian saying goes. Credit Suisse rotted from the head. I personally had some experience with Credit Suisse back in my early career: CS was one of the prime brokers we worked with back in 06-08. While their systems were fine (humorously, Lehman had the best systems in the bond world), CS had the best people from management down on the Prime Brokerage side (prime brokers are brokers to hedge funds, its a complicated business). In 2013, I took notice again of Credit Suisse; my former prime broker and now senior execustive announced he was leaving. I called around and heard a number of other stories about the ‘house cleaning’ that had been going on at Credit Suisse. Unfortunately, everyone leaving had a reputation for being really good at their jobs. Because they were.
The remaining team? Credit Suisse then suffered numerous banking scandals, famously taking multi billion dollar losses in the Archegos and Greensill disasters.
After a decade of mismanagement, the leadership shakeup in recent years looked like Art of the Possible from Evita:
Too little too late. Today’s 7 billion dollar ‘buyout’ by UBS was only made possible with 17 billion of junior bondholders (in this case, called tier 1 bondholders) being wiped out , on top of the Swiss central bank explicitly taking on significant risk of the CS portfolio, possibly measuring in the many billions.
For now, it seems the Swiss banking crisis is contained, but other European banks remain under stress with credit default swaps on the major European banks going up (led by UBS who just took on many of the risks of Credit Suisse).
US Banking
The US Banking system remains in turmoil with lender First Republic looking like it needs another round of financing to be kept afloat. First Republic continuing to receive financing suggests that major banks and the fed view its assets as containing significant value. However, given major outflows of deposits and continued pressure in the stock market, the future of First Republic Bank is unknown. Other regional banks such as Comerica have not recovered in value since dropping heavily during the crash of SVB and Signature. The US Banking crisis is ongoing.
Russian Disinfo
Never one to let a crisis go to waste, the Russian media machine (aka the firehose of falsehood) has kicked into gear. Dumb headlines ranging from happy Putin to suggesting that this bank mess occurred because we support Ukraine. Note, this is false, and even that logic is a mess: is Russia explicitly suggesting should support genocide because they can crash our banks?
Here is one end of the spectrum of bad headlines
And perennial financial disinfo dumpster fire ZeroHedge is trying to weigh in as well:
Needless to say, this banking crisis was not caused by the war in Ukraine. The Russian banking system itself has had to retreat from the world, with Russian banks forced to sell their large system of balkan banks at fire sale prices.
The Great Depression in the US was brought to an end with massive spending on industrial buildup for World War 2. Massive military industrial spending and production would be similarly great for our economy now:
More people working like that man in the picture would be a great way to get the US economy back on track, and supplying Ukraine would help end a genocidal power.