Credit Suisse CDS hit record high as shares tumble
The cost of buying insurance against Credit Suisse defaulting on its debt soared to a record high on Monday, as the Swiss bank failed to calm market concerns around the strength of its balance sheet.
Traders and investors rushed to sell Credit Suisse’s shares and bonds, while buying credit default swaps (CDS), derivatives that act like insurance contracts that pay out if a company reneges on its debts.
Credit Suisse’s five-year CDS soared by more than 100 basis points on Monday, with some traders quoting it as high as 350bp, according to quotes seen by the Financial Times. The bank’s shares tumbled to historic lows of below SFr3.60, down close to 10 per cent when the market opened.
“Credit Suisse has indicated a near-term intention to run with 13 to 14 per cent CET1 ratio, so the second quarter end ratio is well within that range and the liquidity coverage ratio is well above requirements,” he wrote.
Citigroup analyst Andrew Coombs added that the bank’s capital ratio was high compared with peers and would imply about SFr2.5bn ($2.5bn) of excess capital on a 12.5 per cent ratio, which is where he expected the target to move if the bank sold its securitised products business, as it has signalled.
By comparison, UBS’s CET1 ratio at the end of the second quarter was 14.2 per cent, while Deutsche Bank’s was 13 per cent.
This story originally appeared on: Financial Times - Author:Robert Smith
