To The Moon

Disclaimer: The content are from public information, strategies are for communication, not for trading advices directly.

Editor Notes: $Credit Suisse Group AG(CS)$ 's credit default swap (CDS) spreads to more major European and American banks, We may be in the early stages of a banking crisis. If not handled properly, it is a financial crisis.  

Citi Research: The Funding, Liquidity, Valueation, Risks of Credit Suisse

After SIVB, SBNY, Who is Next, ZION, TFC, FRC, KEY or $RF?

1. $Credit Suisse Group AG(CS)$ Plummets Again

The well-known European bank Credit Suisse shares slide 21% on premarket, trading halted after Saudi backer rules out further assistance.

On March 15, CMAQ quotes showed that Credit Suisse's 1-year credit default swap (CDS) soared to nearly 1,000 bps from 835.9 bps at the close of business on Tuesday, about 1000 bps for UBS's one-year CDS. 20 times the price and 10 times that of Deutsche Bank. The cost of insuring Credit Suisse's bonds against default is approaching 1,000 points, a sign of investor panic.

source: zerohedge

2. Why?

According to it's financial report released on Tuesday, Credit Suisse Group's net loss attributable to shareholders in the 2022 fiscal year reached 7.293 billion Swiss francs, a significant double from the previous year's loss of 1.65 billion. After has suffered losses for two consecutive years, Credit Suisse is expected to experience serious losses again in 2023.

Judging from Credit Suisse's financial report and the valuation given by the market, this is a company that is about to go bankrupt.

Although a difficult decision to reorganize has been made, a series of negative news from the group recently has scared investors. Coupled with the recent spread of the Silicon Valley Bank crisis, even the largest shareholder of Credit Suisse surrendered to panic and refused to invest in the company to provide more assistance.

Credit Suisse Group founded in 1856 and headquartered in Suez, Switzerland, is the fifth largest consortium in the world and the second largest bank in Switzerland. In 2022, it will rank 494th on the Fortune Global 500 list.

It is reported that the size of Credit Suisse is almost twice the size of Lehman Brothers, and Credit Suisse's equity holders are more global. As of the end of 2022, Credit Suisse's total assets under management will be about 1.3 trillion Swiss francs ($1.4 trillion), which is 2.33 times the assets held by Lehman Brothers when it collapsed in 2008 (about $600 billion).

3. Is this crisis of Credit Suisse the same as that of $SVB Financial Group(SIVB)$ ?

In contrast, unlike Silicon Valley Bank, Credit Suisse is one of the most trusted banks in the global system. In the evaluation of the Financial Stability Board, it ranks at the same level as $Morgan Stanley(MS)$ and $Wells Fargo(WFC)$ .

（Source:FSB）

Credit Suisse Group Chairman Axel Lehmann told a financial sector conference in Saudi Arabia on Wednesday suggesting the bank does not need government aid.

"Comparing Credit Suisse's current problems to the recent collapse of Silicon Valley Bank is inaccurate, especially because the two banks are regulated differently. We have strong capital adequacy and a strong balance sheet."

Credit Suisse Chief Executive Ulrich Koerner also made a pledge on Tuesday, saying he would be patient as he embarked on a three-year plan to return to profitability. According to Koerner, Credit Suisse's Tier 1 capital adequacy ratio in the fourth quarter of last year was 14.1%, and its liquidity coverage ratio was 144%, which has increased to about 150%.

Citing sources familiar with the matter, after the collapse of $SVB Financial Group(SIVB)$ , the European Central Bank's plan to continue vigorously raising interest rates is expected to meet stronger opposition after the European Central Bank's interest rate meeting on Thursday, March 16.

4. Will Swiss Central Bank Rescue $Credit Suisse Group AG(CS)$

Once Credit Suisse is down, the panic will spread further, and the crisis is likely to spread to more European banks and Japanese banks. We may be in the early stages of a banking crisis. If not handled properly, it is a financial crisis.

For like, the CDS of other major European and American banks such as $Deutsche Bank AG(DB)$ , $BNP Paribas(BNPQF)$ ,$UBS Group AG(UBS)$ , and $Bank of America(BAC)$ are also expanding.

Obviously, the Fed is quick and ruthless. But what about the European Central Bank and the Bank of Japan? As long as one position is lost, it may eventually be completely defeated.

Now the central bank faces a difficult choice. If the bank is not rescued, there will be a financial crisis. After saving the bank, the inflation that has just been suppressed may rise again soon. Once inflation gets out of control, it will be over in the end.

The Swiss regulator said it would provide liquidity to Credit Suisse Group AG (CS) if necessary. The bank, which has been battered by problems with its own financial health, gets an important lifeline.

The recent news said, Credit Suisse borrows more than $50 billion from Swiss National Bank after shares crash 30%.

Some people say that what we are experiencing is not so much a banking crisis as a fiat currency crisis. After so many years of excessive printing of money, a large number of asset bubbles were created, which eventually triggered inflationary backlash. Now that monetary policy is being tightened to curb inflation, the asset bubble has burst before inflation has come down. The banking crisis is a manifestation of the asset bubble bursting. The dilemma between the current financial crisis and inflation is the embodiment of the sharp decline in the credit of legal currency.

5. What trading or option strategy is suitable for $Credit Suisse Group AG(CS)$ ?

In the first two trading days, many investors participated in the transactions of banks such as $SVB Financial Group(SIVB)$ and $First Republic Bank(FRC)$ .

Recommend to Read: Bonds & ETFs Choices after SIVB, SBNY bankruptcy fears in the market!

Do you think Credit Suisse is still credible? Do you dare to 'buy the dip' or it's catching a falling knife?

If you continue to be bearish, or you can consider Buy Put, the income is unlimited and the loss is limited;
If you expect Credit Suisse to usher in a rebound, or you can consider Buy Call, the profit space is larger (unlimited), and the loss is smaller (limited);

However we recommend you a more secure strategy -- straddle option: Buy Call and Put that expire on the same day (with limited losses and unlimited gains), that is to say, regardless of the direction of stock price fluctuations, it can be profitable when it rises or falls.

Editing Notes: Due to the significant drop in the stock price, the volatility of options has increased sharply. As a result, the cost of buying call and put options simultaneously has also increased significantly, making the straddle strategy more expensive to execute. To ensure a profitable outcome, the trader needs to earn more from one side of the trade than the combined costs of both options. However, if the volatility does not increase enough in the future, the trader may incur a loss even if they earn unilateral profits.

What's your understanding of $Credit Suisse Group AG(CS)$ ?

Why the major shareholders don't rescue Credit, who will come ?

Besides options, what else assets are suitable use to hedge Risk?

Please share your thoughts in the comment section