The Potential Impact of Credit Suisse’s Problems on CRE

At the beginning of 2018, the stock price of bank Credit Suisse stood at $19.34. As of market close on Tuesday, it was down to $4.50.

Wall Street is not happy with the institution. A look at the balance sheet gives some examples of why. In its 2021 fiscal year, ending on December 31, Credit Suisse Group, parent of the bank, had $22.5 billion in revenue before loan losses. After, down to $18.3 billion on provision for loan losses of $4.2 billion, according to data from S&P Global Market Intelligence. After legal settlements and impairments of good will, net income was -$1.65 billion.

Compare that to JPMorgan Chase’s total revenue of $138.9 billion and net income of a most positive $48.3 billon. Or Citigroup, with $75.0 billion in total revenue and net income of $22.0 billion.

But what sent the Street to a more panicked tone was concern “after the value of its riskiest bonds sank and the cost to insure against default rose sharply,” according to the Wall Street Journal.

Well, that news and some significant dour takes from finance influencers on Twitter, according to GlobalData. Such things as Credit Suisse and Deutsche Bank were on the “brink of collapse” with share prices below those during the global financial crisis, and the company’s credit default swaps were at a record high. But others saw it as a “mountain out of a molehill.”

Is the company another Lehman Brothers, about to usher in financial contagion and a dominos disaster effect?  TheStreet talked to a number of Credit Suisse employees in the U.S., offering anonymity. Generally, they seem worried for their jobs, but think Wall Street is being unreasonably harsh.

There is a new CEO who started in August. He replaced one who came in during the pandemic in 2020 after a previous chief executive found himself ousted. There’s been a number of years of disappointing results and significant mistakes.

But CNBC reported that analysts seem wary of a Lehman comparison. Credit Suisse is reasonably well capitalized. Even so, it’s raising capital, more to assuage concerns of counterparties. In the run-up to 2008, markets recognized serious balance sheet problems on the part of Lehman.

However, there still could be an impact on commercial real estate. Credit Suisse is generally among the larger issuers of commercial mortgage-backed securities (CMBS). Trepp data for 2019 put them in 9th place with a 5.3% market share. Another TheStreet story suggested that the bank might sell its entire investment banking division, reducing competition in the CMBS market.