If Credit Suisse goes bust

[globaldiver]

41 minutes ago, Tonge moor green jacket said:

Exactly. 

I was up at the local farm earlier- apparently muck spreading was restricted by the eu to prevent run off and pollution. Have to do is at a certain time of the year. Farmers increased inorganic fertiliser use and now there are problems with guess what...run off and pollution!

Not sure new guidelines have been issues yet, but rules have been relaxed as fertiliser prices are so high, and farmers can now spread muck outside of the official times!

Not the same as the finance industry clearly, but parallels nonetheless- whichever system is employed, it's open to abuse and has its flaws. Ultimately, use whatever system works best for the industry, with safeguards in place.

Higher pay for bankers and in the middle of a cost of living crisis?! The politics of this may not look good but the economics behind this make sense and should be seen as a separate issue to the pay demands behind the recent strikes.

Last year Steve Barclay, the Cabinet Office Minister and Boris Johnson’s Chief of Staff asked the Chancellor to introduce deregulatory measures to help businesses. Controversially, this included removing the cap on bankers’ bonuses.

This cap was introduced by the EU following the 2008 financial crisis. At the time, then Mayor of London Boris Johnson witheringly described the policy as ‘the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire’.

He was right. Like many such interventions, rather than achieving its stated aims the bonus cap simply ended up distorting the market.

It triggered a huge rise in basic pay for bankers and across the financial sector. The big firms and incumbents could afford this, but it made life harder for new entrants and the smaller, innovative and dynamic firms that the City needs.

Nor did it help London’s competitive position as a leading global financial centre. All of which means it’s high time the bonus cap was removed, especially given the challenges the City is currently facing.

The first of these challenges is a post-Brexit assault by EU financial centres like Paris and Frankfurt. None can match London, but regulators in a host of EU countries – particularly France – are no longer playing by the normal rules.

They have become politically motivated and are telling some firms in the City to move operations. Legally they don’t have to, but the pressure persists. This behaviour requires the Government, Bank of England and UK regulators to collectively tell the EU to back off.

The second, more significant, long-term challenge is the intense competition from both New York and Asian centres like Singapore and Hong Kong.

This is where the lifting of the cap on bonuses makes a big difference. It levels the playing field for London with New York as well as highlighting another of many pro-business differences with Paris.

The key point here is that in a global market, firms and skilled people can move with relative ease. That means a financial centre like London needs the right tax, regulatory and wage environment to continue to both attract firms and retain talent.

[Tonge moor green jacket]

Aye.

Cap not lifted yet anyway- would imagine that might be on the back-burner just for the time being.

Sooner this country stops viewing making money as something akin to a crime, the better.

That has to include all business of course- not sure about the rise in corporation tax, still contentious. 

[Ani]

38 minutes ago, globaldiver said:

Higher pay for bankers and in the middle of a cost of living crisis?! The politics of this may not look good but the economics behind this make sense and should be seen as a separate issue to the pay demands behind the recent strikes.

Last year Steve Barclay, the Cabinet Office Minister and Boris Johnson’s Chief of Staff asked the Chancellor to introduce deregulatory measures to help businesses. Controversially, this included removing the cap on bankers’ bonuses.

This cap was introduced by the EU following the 2008 financial crisis. At the time, then Mayor of London Boris Johnson witheringly described the policy as ‘the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire’.

He was right. Like many such interventions, rather than achieving its stated aims the bonus cap simply ended up distorting the market.

It triggered a huge rise in basic pay for bankers and across the financial sector. The big firms and incumbents could afford this, but it made life harder for new entrants and the smaller, innovative and dynamic firms that the City needs.

Nor did it help London’s competitive position as a leading global financial centre. All of which means it’s high time the bonus cap was removed, especially given the challenges the City is currently facing.

The first of these challenges is a post-Brexit assault by EU financial centres like Paris and Frankfurt. None can match London, but regulators in a host of EU countries – particularly France – are no longer playing by the normal rules.

They have become politically motivated and are telling some firms in the City to move operations. Legally they don’t have to, but the pressure persists. This behaviour requires the Government, Bank of England and UK regulators to collectively tell the EU to back off.

The second, more significant, long-term challenge is the intense competition from both New York and Asian centres like Singapore and Hong Kong.

This is where the lifting of the cap on bonuses makes a big difference. It levels the playing field for London with New York as well as highlighting another of many pro-business differences with Paris.

The key point here is that in a global market, firms and skilled people can move with relative ease. That means a financial centre like London needs the right tax, regulatory and wage environment to continue to both attract firms and retain talent.

I have been agreeing with you on the Pension thread....it was too good to last. 😂
 

I get we have differing views on this I believe the mega bonuses paid to bankers encourage high risk taking that in turn increases the chances of things going tits up. You do not.

Let's hope neither is proved right as it would need a crash to prove it and that helps no one.

[Spider]

A man with millions already tucked under the mattress is much more likely to take massive and morally reprehensible risks with the hard earned pension money of Joe Normal.

Especially if it adds further millions without risking the ones he already has.

I’ve never done it, probably no one on here has, but it seems fairly obvious that in the long run, working to a cap is the sensible, prudent thing to do.

Short term pain, long term gain lads.

Let New York and Singapore blow themselves up with ridiculous actions.

[globaldiver]

38 minutes ago, Ani said:

I have been agreeing with you on the Pension thread....it was too good to last. 😂
 

I get we have differing views on this I believe the mega bonuses paid to bankers encourage high risk taking that in turn increases the chances of things going tits up. You do not.

Let's hope neither is proved right as it would need a crash to prove it and that helps no one.

Fingers crossed!

Happy to agree to disagree and I hope I’m not proved wrong!

[globaldiver]

1 hour ago, Tonge moor green jacket said:

Aye.

Cap not lifted yet anyway- would imagine that might be on the back-burner just for the time being.

Sooner this country stops viewing making money as something akin to a crime, the better.

That has to include all business of course- not sure about the rise in corporation tax, still contentious. 

Aside of aspiration, fulfilment and success, it is a truism that the private sector creates wealth for the state to spend on education, defence etc etc.

[Tonge moor green jacket]

58 minutes ago, Ani said:

I have been agreeing with you on the Pension thread....it was too good to last. 😂
 

I get we have differing views on this I believe the mega bonuses paid to bankers encourage high risk taking that in turn increases the chances of things going tits up. You do not.

Let's hope neither is proved right as it would need a crash to prove it and that helps no one.

That's why some regulation will still be necessary. 

Greed and risk taking can still occur even with restricted bonuses- either for the kudos or for justifying a wage rise.

 

[globaldiver]

What’s gone wrong;

“It is becoming increasingly clear we nearly had another Lehman moment. ‘Regulators and central banks starred at the abyss and decided they did not want to go there,’ one source close to the events told me.

Credit Suisse really was on the verge of failing as potential losses on its bond portfolio would have sent its capital way below 8%, triggering contingent capital instruments ‘CoCos’, and left it scrabbling to raise new capital in an impossible market. This would have triggered a massive confidence collapse and systemic crisis across European finance, necessitating all-out bailouts and liquidity injections, raising social risk. French banks had massive derivative exposures on the name.

After pleas from Credit Suisse execs, the Swiss National Bank stepped in with a £45bn liquidity backstop which should relieve immediate pressure, but this fixes little in the long run. Once confidence in a bank is broken, it tends to stay that way.

It’s difficult to imagine how unlike anything in banking history, the long slow lingering demise of Credit Suisse has been. If it was a dog, we’d have cuddled it one final time, kissed it goodbye and shot it. Instead, we’ve got to watch the once towering titan of the global financial stage totter through senility, raging incoherently at the dying of the light.

The immediate crisis was brought about when its largest shareholder, a Saudi Bank, stated it would not be increasing its stake. That was seen as a notification of a collapse in confidence in the bank and its management.  Earlier it had reported material weaknesses in its financial reporting for the past two years. When Switzerland’s second largest bank lacks the basic competency to count its money that’s a problem.

Back when I was a young banker in the 1980s, Credit Suisse was a legend. Ossie Grubel was the banker’s banker, the trader’s trader who rose to ultimately became CEO. Credit Suisse First Boston made Goldman look second tier in investment banking.

What went wrong? A series of poor management choices, a failure to understand the unique risks it faces, a dereliction of clients, a failure to nurture its private banking, a loss of confidence in its investment banking division. The once successful Swiss Bank became an international bank with a Swiss name run by international banking technocrats with little understanding of its unique strength or culture.

For years it has being trying to reinvent itself. Multiple plans replaced by new plans, vaguely worded around ‘cultural transformation’, ‘risk management’ and ‘control processes’ to strengthen its Wealth Management, Private Banking and Swiss Banking division. Frankly when you’ve read a recovery plan in October, and a new one is announced in March, it’s difficult to find the enthusiasm to open it.

Over the past few years, if there has been a banking scandal or screw up, you can bet Credit Suisse’s name will be all over it. The bank lost the plot regarding managing and understanding its risk, encouraging bankers to chase anything on the basis it might work. It imposed a culture of profit first, and prudence last. From funding fraudulent tuna fishing boats in Mozambique, multiple drug money laundering failures, spying on its staff, backing financial scam artists like Greensill, or losing billions on hedge fund scam Archegos, you name it, Credit Suisse was there.

However, Credit Suisse had the wherewithal to withstand depositors demanding their cash back. There is no black hole at the core of its credit book set to consume the bank from within that we know of, yet. But my gut tells me Credit Suisse is history.  Confidence has gone. It will likely to be ‘supported’ – rather than outright rescued – by the Swiss Government. It’s too big as a systemically important financial institution in Europe and globally, and too critical to the Swiss economy.

The most likely outcome now is a distressed sale. Realistically, UBS is the only likely buyer. The Swiss will not want one of its ‘national champion’ banks going overseas. UBS is a better managed institution and big enough. It will be a brutal takeout and Geneva will be the loser. UBS (or any other bank) will see a purchase of Credit Suisse as a rescue and will look at HSBC’s £1 purchase of Silicon Valley Bank UK earlier this week as their pricing point.

A takeover feels inevitable. If it happens, then there is a chance, a slim one, even the Germans might take notice, and Europe’s overbanked market of lacklustre national champions might be resolved into a unified banking environment. Who am I kidding? That will never happen!”

Edited March 17, 2023 by globaldiver

[Casino]

Just a fucked up world, imo

Ive no issue with people making stuff, selling it and making money

All this financial sector stuff...nah, parasites

Its probs cos i dont understand it

 

[Spider]

But nothing to do with massive bonuses ?

 

[globaldiver]

15 hours ago, globaldiver said:

What’s gone wrong;

“It is becoming increasingly clear we nearly had another Lehman moment. ‘Regulators and central banks starred at the abyss and decided they did not want to go there,’ one source close to the events told me.

Credit Suisse really was on the verge of failing as potential losses on its bond portfolio would have sent its capital way below 8%, triggering contingent capital instruments ‘CoCos’, and left it scrabbling to raise new capital in an impossible market. This would have triggered a massive confidence collapse and systemic crisis across European finance, necessitating all-out bailouts and liquidity injections, raising social risk. French banks had massive derivative exposures on the name.

After pleas from Credit Suisse execs, the Swiss National Bank stepped in with a £45bn liquidity backstop which should relieve immediate pressure, but this fixes little in the long run. Once confidence in a bank is broken, it tends to stay that way.

It’s difficult to imagine how unlike anything in banking history, the long slow lingering demise of Credit Suisse has been. If it was a dog, we’d have cuddled it one final time, kissed it goodbye and shot it. Instead, we’ve got to watch the once towering titan of the global financial stage totter through senility, raging incoherently at the dying of the light.

The immediate crisis was brought about when its largest shareholder, a Saudi Bank, stated it would not be increasing its stake. That was seen as a notification of a collapse in confidence in the bank and its management.  Earlier it had reported material weaknesses in its financial reporting for the past two years. When Switzerland’s second largest bank lacks the basic competency to count its money that’s a problem.

Back when I was a young banker in the 1980s, Credit Suisse was a legend. Ossie Grubel was the banker’s banker, the trader’s trader who rose to ultimately became CEO. Credit Suisse First Boston made Goldman look second tier in investment banking.

What went wrong? A series of poor management choices, a failure to understand the unique risks it faces, a dereliction of clients, a failure to nurture its private banking, a loss of confidence in its investment banking division. The once successful Swiss Bank became an international bank with a Swiss name run by international banking technocrats with little understanding of its unique strength or culture.

For years it has being trying to reinvent itself. Multiple plans replaced by new plans, vaguely worded around ‘cultural transformation’, ‘risk management’ and ‘control processes’ to strengthen its Wealth Management, Private Banking and Swiss Banking division. Frankly when you’ve read a recovery plan in October, and a new one is announced in March, it’s difficult to find the enthusiasm to open it.

Over the past few years, if there has been a banking scandal or screw up, you can bet Credit Suisse’s name will be all over it. The bank lost the plot regarding managing and understanding its risk, encouraging bankers to chase anything on the basis it might work. It imposed a culture of profit first, and prudence last. From funding fraudulent tuna fishing boats in Mozambique, multiple drug money laundering failures, spying on its staff, backing financial scam artists like Greensill, or losing billions on hedge fund scam Archegos, you name it, Credit Suisse was there.

However, Credit Suisse had the wherewithal to withstand depositors demanding their cash back. There is no black hole at the core of its credit book set to consume the bank from within that we know of, yet. But my gut tells me Credit Suisse is history.  Confidence has gone. It will likely to be ‘supported’ – rather than outright rescued – by the Swiss Government. It’s too big as a systemically important financial institution in Europe and globally, and too critical to the Swiss economy.

The most likely outcome now is a distressed sale. Realistically, UBS is the only likely buyer. The Swiss will not want one of its ‘national champion’ banks going overseas. UBS is a better managed institution and big enough. It will be a brutal takeout and Geneva will be the loser. UBS (or any other bank) will see a purchase of Credit Suisse as a rescue and will look at HSBC’s £1 purchase of Silicon Valley Bank UK earlier this week as their pricing point.

A takeover feels inevitable. If it happens, then there is a chance, a slim one, even the Germans might take notice, and Europe’s overbanked market of lacklustre national champions might be resolved into a unified banking environment. Who am I kidding? That will never happen!”

They just got bored with being Swiss

[Spider]

15 minutes ago, globaldiver said:

They just got bored with being Swiss

The warning signs were there when Toblerone moved production to Slovenia

[Tonge moor green jacket]

2 hours ago, Spider said:

But nothing to do with massive bonuses ?

 

You didn't read the article then. No surprise. 

[Spider]

4 minutes ago, Tonge moor green jacket said:

You didn't read the article then. No surprise. 

Yes I did, and very good it was too.

But it made no mention of bonuses, despite implying that there are loose cannons within the CS organisation that have contributed to its decline.

Hence the question - have bonuses played a part?

Now untwist thy knickers

[globaldiver]

3 minutes ago, Spider said:

Yes I did, and very good it was too.

But it made no mention of bonuses, despite implying that there are loose cannons within the CS organisation that have contributed to its decline.

Hence the question - have bonuses played a part?

Now untwist thy knickers

I don’t know, but it sounds as though they are trying to be more like yanks.

The remuneration of US executives can be eye watering, and how they get there really worries me, with leveraged buyouts etc. I’m trying to keep away from investing into the US at the moment.

[Spider]

8 minutes ago, globaldiver said:

I don’t know, but it sounds as though they are trying to be more like yanks.

The remuneration of US executives can be eye watering, and how they get there really worries me, with leveraged buyouts etc. I’m trying to keep away from investing into the US at the moment.

Just get the impression that despite being heavily regulated, there’s still room for a Nick Leeson to burn the house down

[globaldiver]

4 minutes ago, Spider said:

Just get the impression that despite being heavily regulated, there’s still room for a Nick Leeson to burn the house down

This is what Nick Leeson said a couple of days ago;

“Not since my own reckless risk-taking back at Barings in the nineties have we seen a bank sold for £1. That is until this week, when the princely sum was paid by HSBC to rescue the UK arm of Silicon Valley Bank (SVB).

Whilst the news comes as a huge sigh of relief for UK tech start-ups that bank with SVB, it also raises the question of how and why?

SVB is the largest bank failure since the 2008 Global Financial Crisis. It’s the second-largest banking failure in the history of the United States.

As to how? The bank’s overriding business strategy was that interest rates would remain low and we’ll lend to companies that benefit from a low-interest rate environment – growth and tech stocks. Putting all your eggs in one basket sounds a little crude but it’s not far from the truth.

Nobody told the FED, who have been raising rates aggressively now for some time. Deposits started leaving the bank and they had to raise capital to offset fleeing deposits as well as suffering a $1.8 billion loss on treasury bonds whose values were demolished by the FED rate hikes.

My own sorry story that ended in bank collapse, one step up from bank failure, was slightly over 28 years ago. In the intervening period, there has been a series of changes to the banking and financial environment to make matters more transparent, banking safer, and regulation better.

As to the why? Exactly the same reasons as 28 years ago – bad decisions, poor controls, inefficient regulation, poor governance, and a host of other control mechanisms that have failed.

FTX collapsed in November 2022. It’s only March 2023. Whilst different, surely one suggests banks take a closer look at themselves”

[Spider]

8 minutes ago, globaldiver said:

This is what Nick Leeson said a couple of days ago;

“Not since my own reckless risk-taking back at Barings in the nineties have we seen a bank sold for £1. That is until this week, when the princely sum was paid by HSBC to rescue the UK arm of Silicon Valley Bank (SVB).

Whilst the news comes as a huge sigh of relief for UK tech start-ups that bank with SVB, it also raises the question of how and why?

SVB is the largest bank failure since the 2008 Global Financial Crisis. It’s the second-largest banking failure in the history of the United States.

As to how? The bank’s overriding business strategy was that interest rates would remain low and we’ll lend to companies that benefit from a low-interest rate environment – growth and tech stocks. Putting all your eggs in one basket sounds a little crude but it’s not far from the truth.

Nobody told the FED, who have been raising rates aggressively now for some time. Deposits started leaving the bank and they had to raise capital to offset fleeing deposits as well as suffering a $1.8 billion loss on treasury bonds whose values were demolished by the FED rate hikes.

My own sorry story that ended in bank collapse, one step up from bank failure, was slightly over 28 years ago. In the intervening period, there has been a series of changes to the banking and financial environment to make matters more transparent, banking safer, and regulation better.

As to the why? Exactly the same reasons as 28 years ago – bad decisions, poor controls, inefficient regulation, poor governance, and a host of other control mechanisms that have failed.

FTX collapsed in November 2022. It’s only March 2023. Whilst different, surely one suggests banks take a closer look at themselves”

Not exactly full of confidence is he? 🙃

[globaldiver]

4 minutes ago, Spider said:

Not exactly full of confidence is he? 🙃

Quite 

There are plenty of risks in everything. 

[globaldiver]

5 minutes ago, Spider said:

Not exactly full of confidence is he? 🙃

Although, I like his summary of what went wrong. Easy to blame “bankers bonuses”

[Spider]

31 minutes ago, globaldiver said:

Although, I like his summary of what went wrong. Easy to blame “bankers bonuses”

I’m suggesting it’s a contributing factor.

Not the only factor.

But the more risk you remove, the less chance of “accidents”

[globaldiver]

23 minutes ago, Spider said:

I’m suggesting it’s a contributing factor.

Not the only factor.

But the more risk you remove, the less chance of “accidents”

You know best

[Spider]

Just now, globaldiver said:

You know best

 

[RoadRunnerFan]

13 hours ago, Casino said:

Just a fucked up world, imo

Ive no issue with people making stuff, selling it and making money

All this financial sector stuff...nah, parasites

Its probs cos i dont understand it

 

Whilst I agree with your view to an extent; in order to make and sell more stuff and make more money,  businesses will often require capital to expand. So the financial sector and the 'real' economy are not unrelated. 

[Tonge moor green jacket]

4 hours ago, RoadRunnerFan said:

Whilst I agree with your view to an extent; in order to make and sell more stuff and make more money,  businesses will often require capital to expand. So the financial sector and the 'real' economy are not unrelated. 

Yep.

Not sure folk always realise where governments' borrowing comes from neither. Hence the importance of responsible spending.