Credit Suisse shares have surged this week after online investors predicted that the bank’s collapse would be imminent. Traditional analysts were skeptical.
Credit Suisse was rocked by turnover amongst top-ranking executives as well as struggling business ventures which sent stock prices plummeting more than 55% this past year. However, The Wall Street Journal reported that there is no clear explanation for why online investors on Reddit and Twitter suddenly became pessimistic about the bank giant’s business.
Vice reported that although stock pessimism is down, the price for credit default swaps (CDSs), which are contracts where the buyer gets paid if the company defaults on their debts, has not fallen. Investors believe that a company is more likely than others to default. They are willing to take on more risk to purchase the CDS, in the belief that they will get a return on their investment.
According to Neil Unmack (a financial columnist at Reuters Breakingviews), the cost of five-year swaps rose nearly 80% on Thursday compared with mid-September’s average values. The elevated prices could be an indication that investors are hedging against Credit Suisse. However, they would likely return back to normal if Credit Suisse were to acquire significant capital. This would quell concerns about the bank’s financial health.
According to Axios, Credit Suisse would have to raise nearly $100 billion to avoid defaulting on its loans. This capital could include cash, bonds, and real estate. Investors may transfer their money if the bank is not able to convince them of its health.
Credit Suisse didn’t immediately respond to The Daily Caller News Foundation’s request.