Credit Suisse Default Swaps Are 18 Times UBS, 9 Times Deutsche Bank

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(Bloomberg) — The cost of insuring Credit Suisse Group AG’s bonds against default in the near term is approaching a level that would normally prompt serious investor concerns.

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The one-year credit default swap for the troubled Swiss lender was quoted at 835.9 basis points at the end of trading Tuesday, based on pricing source CMAQ. Other pricing sources point to further increases on Wednesday, while the 1,000 level would indicate serious concern. The current level is around 18 times one-year CDS for rival Swiss bank UBS Group AG, and around 9 times the equivalent for Deutsche Bank AG.

The CDS curve is also deeply inverted, meaning it costs more to protect against an immediate failure at a bank rather than a default down the line. The lender’s CDS curve had a upward slope as recently as Friday. Traders typically attribute the higher cost of security to longer, more uncertain periods.

Credit Suisse is in the midst of a complex three-year restructuring plan to return the bank to profitability. Hit hard by the recent wave of recession due to the closure of a bank, its five-year CDS spread hit a record. Shares hit a new record low on Wednesday after the bank’s top shareholder ruled out further financial support for the struggling Swiss bank, citing regulatory hurdles.

Chief Executive Officer Ulrich Korner said in a Bloomberg television interview on Tuesday that business momentum had improved this quarter and that the bank had attracted funding following the collapse of SVB.

As a systemically important bank, Credit Suisse adheres to “materially different standards” in terms of capital strength, funding and liquidity than lenders such as SVB, Konner said. He said the lender had a CET1 capital ratio of 14.1% in the fourth quarter and a liquidity coverage ratio of 144% which has increased since then.

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“The second point is that the amount of fixed income securities we have as part of our HQLA portfolio is not at all material,” he added. “And on top of that the interest rate exposure is fully hedged.”

According to Tuesday’s annual report, the outflow of customer money, which was at an unprecedented level in early October amid social media firestorms questioning the health of the bank, has not reversed as of this month, though at a much lower level. has stabilized.

Axel Lehman said on Wednesday that government aid was “not an issue” for the lender and it would be unfair to compare the Swiss bank’s current problems with the recent collapse of SVB. He was speaking at the Financial Sector Conference in Saudi Arabia.

– With assistance from Dale Crofts.

(Update with charts, Credit Suisse liquidity comments, more context.)

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