Financial services Credit Suisse (NYSE:CS) captured headlines for the wrong reasons as CS stock gyrated wildly since Friday. At the tail end of last week’s session, the spread on Credit Suisse’s credit default swaps – which offer investors protection against financial risks such as default, per CNBC – increased sharply. On Monday’s opener, CS shares plunged as much as 10% before gaining about 1% in the early afternoon session.
According to a report from the Financial Times, senior Credit Suisse executives “spent the weekend reassuring large clients, counterparties and investors about the Swiss bank’s liquidity and capital position in response to concerns raised about its financial strength.” One executive close to the matter noted that the company received “messages of support” from its top investors.
At one point during the initial selloff earlier today, Bloomberg reported CS stock featured a market capitalization of less than $10 billion. Further, the credit default swaps – effectively the insurance of the bank’s debt against default – jumped to their highest level ever.
On a year-to-date basis, CS stock hemorrhaged 60% of market value. Although Credit Suisse CEO Ulrich Körner attempted to frame the credit default swap spike in light of the bank’s “strong capital base and liquidity position,” the head exec also acknowledged that the company stands at a critical moment.
According to the Wall Street Journal, Credit Suisse will present a strategy update outlining its plans on Oct. 27.
CS Stock Faces Sharp Risks and Contrarian Interest
Moreover, the WSJ reports that it “now costs 335 euros a year to insure 10,000 euros of senior debt issued by the bank against default,” citing research from Joost Beaumont, senior fixed income strategist for ABN AMRO Bank. Moving forward, the key question may be what assets undergirding CS stock management intends to sell.
“In current, volatile, market conditions, it is more likely that CS has to accept higher losses, which will weigh on its capital position. This makes the task of the CEO pretty difficult,” Beaumont said.
At the same time, CS stock may present an audacious contrarian opportunity. “Credit Suisse is a buy for the brave at these levels,” Citigroup analysts including Andrew Coombs stated in a research note. “But headline news flow is likely to remain negative and we do see significant execution risk in any new strategic plan.”
Other Wall Street experts chimed in, criticizing the scaremongering surrounding CS stock. Saba Capital Management’s Boaz Weinstein urged investors in a tweet to “take a deep breath.” Weinstein “compared the situation to when Morgan Stanley’s CDS was twice as wide in 2011 and 2012,” per Bloomberg’s description.
Nevertheless, Credit Suisse remains troubled, struggling amid a series of financial and reputational hits. Bloomberg also reported the company may initiate sweeping changes, including “cutting thousands of jobs over a number of years.” Therefore, CS stock remains a speculative investment at this juncture.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
