Credit Suisse on the Brink: The Potential Lehman Brothers Sequel Nobody Wants
The entire US financial sector has been shaken in the last week as not only SVB disintegrated, but also US lenders Signature and Silvergate, and even Credit Suisse shares plunged to record-breaking lows. Economists have commented that if Credit Suisse were to crash too, it would be akin to another ‘Lehman Brothers’ event, with catastrophic global consequences.
Larry Fink, CEO of investment giant BlackRock, has warned that the collapse of the Silicon Valley Bank may only be the beginning of something much worse. In an ominous letter to investors, Fink cautioned that a “slow-rolling crisis” could well be on the way as persistent inflation and continuing rate rise to wreak havoc on the US banking sector.
Fink went on to alert investors that “It’s too early to know how widespread the damage is.” Even further trouble may be brewing on a global scale as instability in the European banking sector continues to develop. Understandably, this news has put a lot of investors on edge.
Ray Dalio, the founder of Bridgewater, explained that he saw SVBs collapse as a classic phase in a well-established short-term debt cycle, where cyclical boom and bust events occur as standard. Dalio went on to compare the failure of SVB to a ‘canary in the coalmine’, signaling incoming consequences on the venture and finance industry, and even beyond.
The Wall Street Journal reported that the Securities Exchange Commission and the US department of justice have taken over investigations into the circumstances which led to SVBs collapse. Their efforts will include examining sales of stock by SVP executives in the weeks leading up to its failure, as well as the conspicuous absence of a chief risk officer – a position that has not been filled since April 2022.
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