Losses for scandal-racked Credit Suisse could reach $3 billion, driving its core capital below 13%, according to Moody’s Investors Service. S&P Global also predicts the bank will fall into credit negative territory.
“The current market environment is not supportive of restructuring and is not supportive of Credit Suisse’s current capital market business model,” said Alessandro Roccati, Senior Vice President of Moody’s financial institutions group. “Deteriorating market conditions have affected the potential realization value of businesses they were considering to sell.”
Some expect the bank to reduce its assets book value at the end of October, and think the issues facing Credit Suisse may exist across the banking industry.
“There’s a lot of talk about the bank splitting up, but challenges even exist there. Its American businesses were focused on leverage finance, which was a cash cow while the Fed offered historically low interest rates,” said Richard Gardner, Chief Executive Officer of U.S. fintech firm Modulus, which develops ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges. “Now that rates are increasing significantly, the business won’t be able to show the same profits, even in the very best of circumstances.”
Gardner added that a bank sell-off wasn’t out of the question, and that other financial institutions were experiencing similar stress. “The Bank of England confirmed that U.K. pensions almost collapsed. Since the bond market is taking away the printing press from the central banks, we’re about to see a major shakeup,” said Gardner.