“History does not repeat itself, but it rhymes”, the aphorism often ascribed to the American poet Mark Twain naturally also applies to financial crises. When the shares of the major Swiss bank Credit Suisse slipped to an all-time low on Monday, comparisons with the big bang on the markets after the collapse of Lehman Brothers in 2008 quickly circulated on social media.
Luckily, that is – at least as of today – the wrong rhyme. Credit Suisse is not Lehman Brothers. The biggest difference between 2008 and today: Lehman failed because the entire industry was faced with a gigantic problem. The bubble in the overheated US real estate market burst, causing huge problems for almost every major bank in the US and Europe.
Credit Suisse, on the other hand, is struggling with manageable homegrown difficulties that initially only affect the institution itself and not the entire industry.
The better historical rhyme would probably be the situation of Deutsche Bank in 2016, when the institute slipped into a deep crisis of confidence due to a billion-dollar fine threatened by the US authorities. Even then, the root causes of the crisis were homegrown, and they looked very similar to Credit Suisse’s problems today. Deutsche Bank afforded itself a completely oversized investment bank that used far too much capital and regularly caused expensive scandals.
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The turning point for Deutsche Bank came when the threatened fine in the USA was significantly lower than feared. That gave the bank, which was ailing at the time, the scope for a capital increase of eight billion euros in 2017. But the Frankfurt-based company neither used the time gained nor the fresh capital for a tough restructuring, but instead muddled on. It was not until the summer of 2019 that the then new CEO Christian Sewing launched his far-reaching restructuring plan.
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This is where the parallels between Deutsche Bank and Credit Suisse end. Because the Swiss are under enormous time pressure. Fear of recession, concerns about inflation and geopolitical crises – the environment for a bank restructuring could hardly look much worse.
The new CEO, Ulrich Körner, gave himself until the end of October to put his restructuring plan on the table. With the markets in turmoil, it wouldn’t be a bad idea to accelerate this schedule. Investors have known for weeks that Körner won’t have any good news to report. It is the uncertainty that is getting on our nerves more and more and is increasingly becoming a danger for the bank.
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