Unexpected Buyout Of Credit Suisse's As Other Banks Go Bust

Today, we will be discussing one of the wildest price actions in the market that has caught everyone's attention. I bet the biggest penny stock news of the week for most people is Credit Suisse(CS) and there unexpected buyout.

Credit Suisse has been the major piece of the puzzle that signals the start of the next trend in the stock market. Maybe even a Lehman Moment!

It's week two of the bank stocks hijacking the penny land activities.

This week, we revisited the bankruptcy sector theme of the market. These are the same stocks that have seen the same kiss of death as meme stocks. They are forever going out of business before they are temporarily saved by generous donors looking to be connected to the hype. First Republic Bank has been kissed and it's getting ready to tell. For example, Bed Bath & Beyond (BBBY) has been going out of business for several years as a nostalgic retailer. The bank Credit Suisse has been around for 170 years, and its reputation alone helps it put up a struggle. But the smaller banks, such as FRC, are unknown, so everyone is looking at FRC to test the water.

Credit Suisse, the second-largest bank in Switzerland, has had a spotty past and has been going out of business for about 2 years now. It has been involved in scandals, swashbuckling, and bad strategies from management as featured in the After Hours during October last year. The final straw in CS was its failed investment with Archegos that destroyed its credit rating. that triggered a massive sell-off after its biggest investor, Saudi National, lost 1 billion and ruled out further financial assistance. Absent the oil money, they looked to the Swiss Central Bank to open a credit line, but the $54 billion deal failed.

After two US banks failed and fears of contagions threatened to enter a global scale, the central banks opened up an emergency joint liquidity operation. It was based on the necessity of 5 trillion dollars in early 2008. The SCB used this to make a deal with the rival Swiss bank UBS.

In the face of a global stock market contagion of fear spreading in the debt markets, unrealized profits started to stack up because too many banks took on liabilities that didn't scale well with the pace of rate hikes.

In Europe, the contagion spread rapidly, so a deal on the weekend was rushed to take control of the story before it affected the global markets. The SCB used a $100B credit line for UBS to take additional risk in a rushed merger. Europe had Tier 1 bonds with special fine print that favored breaking the deal. If capital in the bank fell below a certain threshold, all those specific bonds would be swiped and used as a capital cushion in times of distress.Pimco and Invesco were the largest holders. $17 billion in debt was wiped out in the merger. Shareholders did not get a say in the government-backed deal because of the potential global financial crisis. They will be given one UBS share for every 22 shares of CS owned.

The merger idea came from how the contagion was contained by the FDIC last week. The US regional banks were exposed to systemic risk issues initiated by the failure in SVB with its unique composition of uninsured clients to those insured by the FDIC. Technically, it's the only bank that failed and went into receivership, but all banks were affected by the highlighted risks. So the FDIC offered free insurance to all big banks, which put more pressure on the regional banks. Signature bank was dissected by the FDIC. The 60 Billion in loans went into receivership from its crypto investment. The remains were sold to NYCB, a regional bank in New York, for cheap. Silvergate shut down and liquidated itself after regulator intervention for the same reasons.

The bank next in line to fall is First Republic Bank, especially after constant downgrades of credit ratings from analysts ruining its reputation. The bailout attempts of $10s of billions of dollars in rescue packages from larger banks could not stop the 47% plunge in share price. Unknown sources say it only takes 50% of the large depositories to leave before a regional bank will fail. However, It's more likely that someone will step in to save the day. FHLB, which is normally a next to last minute lender for banks, issued $304 Billion in a Week. Double the 157B asked from the FED.

It's about saving the faith in the banking system after confidence is slowly leaving. Articles have mentioned Warren Buffet's name in these discussions. It worked after rumors spread of the studying of ways to insure all banks. The US stocks did rally before the FOMC meeting.

However, investors need to be cautious with these banks stocks as they can be volatile despite fundamentals. CS is a large cap with a large float of 2.68B, and it trades with slow spikes and slow fades. It's crucial to lead with risk management and stay up to date with the latest news developments.

Trust me, you're not gonna want to miss its developments or its analysis throughout the week in our live premarket-prep morning show.. . This could be a big deal since anyone can use these key factors in your next trade.

Other honorable mentions come from an active week in the industrials and financial sectors. Which has created several opportunities this week for Parabolic Shorts and multi day bounce shorts opportunities. You may be looking at your future resistance play for the coming months.

There are weren't many tickers in Penny Land this time around

However, if any of these stocks are something you may be interested in trading. You may do well to join our discord chat to check out our daily watchlist. Till next week. Happy Trading!

« Back to Blog

Related Articles

Are These The Best Day Trading Strategies For New Traders?

5 minute read

09/13/2022 9:52pm

How much does a day trader make? A closer look

13 minute read

02/25/2024 5:23pm

How does day trading work? A guide for beginners

14 minute read

02/25/2024 5:20pm