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Debit Suisse
Despite the hubbub, there are three reasons Credit Suisse $CS, Switzerland's biggest bank, is unlikely to collapse:
- First, their default likelihood is 'meh'. Moody's, a credit grader, rates the bank Baa2. Based on past data, the firm has a 3% chance of collapse within a decade.
- Second, the bank is sufficiently capitalised. Investor funds make up 13.5% of risk-adjusted loans, putting them in the top 40% of all public banks.
- Third, the retail banking division is pretty profitable. If investment banking and trading losses threaten the company's survival, the firm could shut down or sell these divisions.
Sure, Credit Suisse has problems with the law, leverage, and ego. Its investment bank is a furnace turned dumpster fire—it used to nourish, but now it stinks. And equity holders are in for a rough ride. As the bottom line plumbs new depths, these investors will need to cough up capital. Bosses will retain future profits to fortify the balance sheet, reducing payouts and intrinsic value.
But, despite being the flavour of the month, the Lehmanesque collapse of Credit Suisse is more fantasy than fact.
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