Credit Suisse CDS spike is ‘not a Lehman Brothers moment’

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Credit Suisse Group AG (SWX: CSGN) is in focus on Monday after its 5-year credit-default swaps climbed to a record high since 2009.

Larry McDonald reacts to the news

The investment bank, over the weekend, was reported to be looking for more capital.

CEO Ulrich Corner, in a recent memo, however, denied such rumours and reiterated that the bank was sound in terms of capital and liquidity. Reacting to it, Larry McDonald (Founder of Bear Traps Report) also said:

It’s a melting ice cube, not passing a U.S. stress test. So, there’s definitely, I think, 90% to 100% probability that there’s a forced merger or bailout in the next 30 to 60 days. But it’s not a Lehman Brothers moment.

Credit Suisse says it will update on its restructuring plan, which may include divestitures and asset sales, with the quarterly financial results on October 27th.  

What does it mean for the U.S. central bank?

Last year, the Swiss bank lost billions on the collapse of Archegos and Greensill. It has been in loss over the past three quarters. Shares of Credit Suisse hit an all-time low on Monday.

In September, the U.S. Federal Reserve signalled a terminal rate of 4.6% in 2023 (find out more). But the Credit Suisse news, McDonald noted on CNBC’s “Squawk Box”, now stands in the way of that policy stance.

You got $50 trillion more debt today on planet Earth then five years ago in the last cycle. The Fed is promising 125 to 150 basis points of more hikes. But they will be stopped in their tracks.

That may be why the benchmark S&P 500 index is in the green today.

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