Exciting new episode of Coolabah’s Complexity Premia Podcast out now!

Anatomy of a bank failure and why Coolabah was shorting Credit Suisse in 2022

Chris Conway from Livewire Markets writes when it comes to bank failures, they are typically borne by some miscalculation of risk and overexposure to a collapsing asset – think mortgages in the US during the GFC or, more recently, US government bonds in the case of Silicon Valley Bank. 

That was not the case with Credit Suisse, however. Rather, it was death by 1000 cuts (or more precisely, scandals) that weakened and ultimately broke the global bank. 

Over the past decade, Credit Suisse and its employees spent a lot of time in front of the regulator, doing their best to explain money laundering, corruption, tax evasion, and corporate espionage scandals. But it was the exposures to the collapses of US hedge fund Archegos and UK finance firm Greensill Capital that really twisted the knife.

The hammer blow, however, was a tweet from a journalist that the investment bank was ‘on the brink’. That led to massive outflows, a big hole in the balance sheet, and Credit Suisse reporting that it had found ‘material weaknesses’ in its financial reporting. 

Despite some attempts by the Swiss National Bank to rescue Credit Suisse, there was ultimately no confidence from the market and the bank was eventually sold to UBS. 

As with any blow-up, there are winners and losers. Typically there are many losers and only a handful of winners – with the latter managing to both anticipate what was happening and take advantage by moving quickly. 

In this Expert Insights, Head of Credit Research at Coolabah Capital, , tells the story of Coolabah’s short position in Credit Suisse, and how he and the team are viewing the current landscape. 

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