The logo of Swiss bank Credit Suisse is seen at a branch office in Bern, Switzerland October 28, 2020. Picture taken October 28, 2020.

Arnd Wiegmann/Reuters

Bets that Credit Suisse will default on its debt soared to record levels on Wednesday.
Shares of Credit Suisse plunged 25%, setting off fresh fears of a banking crisis. 
The plunge for Credit Suisse came after a top investor said it would not invest more money in the bank.

Credit default swaps tied to bonds issued by Credit Suisse soared to record levels on Wednesday, indicating that more and more traders believe the Swiss bank will default on its debt.

The alarm bells started to ring after the chairman of Saudi National Bank, which bought a 10% stake in Credit Suisse late last year, said he would “absolutely not” invest more money in the struggling bank.

Those comments sent shares of Credit Suisse plunging 25% on Wednesday to record lows, while CDS spreads tied to the bank’s one-year and five-year debt surged to record highs. 

Credit default swaps are a form of insurance against issuers not making scheduled payments on their debt.

The trading instrument was successfully used by some investors who bet against the housing market in 2008, including Michael Burry of Scion Capital. Protection payouts on the CDS are triggered when a debt payment is missed.

The volatility on Wednesday spread to other beleaguered European banks, with Deutsche Bank seeing its stock price plunge 10% while UBS fell as much as 9%.

Fears among investors have grown that a rather-contained crisis in US regional banks over the past week had spread to European banks, but Credit Suisse CEO Ulrich Körner said the situation in the US is not comparable to …read more

Source:: Businessinsider