Could there be a worse economic collapse than 2008 incoming? Many know and remember the devastating effects of the last recession, which occurred 14 years ago as of the time of this writing.
However, some believe that another recession is incoming, which will have greater impact than 2008. There are already signs and indications of one possibly coming. Some are even saying that another recession is “Long Overdue.”
In a previous piece, I covered the upcoming real estate collapse, which you can view here.
I gathered information from different sources over the internet covering different situations. I’m sharing info on two huge banks that could potentially be in trouble, and how the economy could be affected.
Quick Rewind: The Lehman Brothers
First going to rewind, and mention a critical moment that lead to the 2008 recession, the collapse of The Lehman Brothers.
They were a large back and an important financial contributor to the U.S. economy. They managed $639 billion in financial assets and handled mortgage-back securities and collateral debt obligations.
Lehman Brothers had mentioned they had a strong financial position. But then came the collapse of the subprime mortgage market due to many underperforming loans issued to borrowers who didn’t qualify. High-mounted debt forced the Lehman Brothers to shut down and the events of 2008 soon followed.
Credit Suisse and Deutsche Bank
Many critics believe Deutsche Bank and Credit Suisse may have a Lehman Brothers moment soon.
Credit Suisse
Credit Suisse manages $1.45 trillion in financial assets. According to TheStreet, one year ago Credit Suisse had a market capitalization of $22.3 billion. But now they have only $10.4 billion. The company’s shares fell a whopping 56.2% in one year.
Recent events leading to their financial woes came from scandals occurring within one year. One being Greensill and Archegos.
First Greensill. A British company, packaged debts of companies they lent money towards into financial securities to resell to investors. Investors of these packaged debts, according to TheStreet, backed out after questioning the value of these debts.
This caused the British accounts receivable lender to file for bankruptcy. Credit Suisse had $10 billion invested in Greensill.
The second scandal occurred from Archegos. The capital management firm used Credit Suisse’s and other banks’ funds to invest in ViacomCBS. Their shares had increased in value during 2020 but later crashed in March 2021. Archego, unable to cover the losses, filed for bankruptcy.
The scandals don’t stop there. According to Investment Monitor, in June 2022 Credit Suisse was found guilty by Switzerland’s Federal Criminal Court for failing to prevent money laundering (which the bank denied) by a Bulgarian cocaine trafficker.
The scandals, along with the loss of talent within the company, and the spike of Credit Default Swaps (or CDS – Bitcoin.com) has the company on the ropes. They are looking for a potential second wind through a much-needed but painful restructuring of their business.
In short, a CDS is insurance against the risk of investments that allows an investor to swap or offset their credit risk with that of another investor. This may mean that more investors are looking to mitigate their risks. The market may be protecting itself against a potential collapse of Credit Suisse (Source: Investopedia).
Deutsche Bank
Deutsche Bank manages $1.3 Trillion in financial assets. Within the same time frame as Credit Suisse, the large banking institute has seen its own stock drop by 27%.
The bank suffered its own legal trouble, where an internal probe found that Deutsche Bank committed tax fraud. According to an internal investigation, they allowed clients to siphon off millions of Euros in government revenues.
According to Seeking Alpha, the bank’s stock is clearly undervalued. They and Credit Suisse are trading at extremely low values as if they were in the process of liquidating already.
But compared to Credit Suisse, Deutsche Bank seems to be in better shape. A graph on Seeking Alpha shows after 2019 net revenues grew for the company. Their net revenue is projected to total between $26-$27 billion Euros.
In fact, a quote from an investor found on Bitcoin says this:
“Investors Should Avoid Credit Suisse and buy Deutsche Bank”
Bitcoin.com
What This Means For the Economy
Recent events occurring within the company Credit Suisse could seem like a repeat of the Lehman Brothers. Lehman did their best to assure people they had strong liquidity and financial position. That was before the rug was pulled up from under them.
Their fallout led to thousands of jobs lost, smaller banks shutting down, and massive foreclosures. Their collapse brought the U.S. economy to its knees.
The CEO of Credit Suisse, Ulrich Koerner, claims the company “Is facing a critical moment, but has a strong capital and liquidity position.” However, Wall Street Journal member Spencer Jakab isn’t believing his claim. Jakab believes Koerner is ignoring the market concerns, and in doing so gives the huge bank a bad look (Source: Being Crypto).
Investors have raised concerns regarding Credit Suisse’s potential fate, and media outlets are riding this narrative forward.
According to Investment Monitor, some are blaming investors for causing market anxiety, which has driven up the CDS and caused the stock prices to fall. But anxious investors have a period of watching the CDS and stock prices ahead.
This can possibly bring the quality of the loans of both banks into question. Given the scandals and legal troubles from both banks, it can be understandable for people to have skepticism.
Final Thoughts
Again the Lehman Brothers managed $639 billion before they collapsed. Their demise affected a lot of people around that time.
But now we’re talking about not, one but two huge banks, both with a combined $2.8 trillion in financial assets. Prior and current events of especially Credit Suisse could mean history has the potential to repeat itself.
Imagine both collapsing, what that would do? It’s why some are saying should another recession take place, it could be more catastrophic than 2008. No company, large or small, is exempt from insolvency.
So if you are an investor, do your due diligence prior to making an investment with any company. Use the right tools and platforms to monitor signals that indicate the best time to buy when the market is low.