Credit Suss, or Lehman Brothers 2.0: a new crash coming? 😱; Your FinTech should be much more like Liquid Death, the $700M canned water brand 💦; Kim K's crypto crackdown signals future regulations 👀

FinTech is Eating the World, 5 October

Hey Everyone,

Happy Wednesday! Today’s issue is one of the most important ones I’ve ever written. I hope you will soon agree with me as today we’re looking at Credit Suss, or Lehman Brothers 2.0 (is a new crash coming? to worry or not?), see why your FinTech should be much more like Liquid Death, the $700M canned water brand (it’s both a case study & a masterclass in marketing, so you have to steal it!), and Kim Kardashians crypto crackdown (what signals it sends about the future regulations?). Let’s jump straight into the impactful stuff:

Credit Suss, or Lehman Brothers 2.0: a new crash coming? 😱

Credit Suisse has become Debit Suisse! And the Swiss flag has imploded. Source: 9gag

BREAKING: BANKS🚨 In addition to the war in Ukraine🇺🇦, the whole world is carefully watching another important development that’s threatening to tear the global financial system apart. Germany’s Deutsche Bank DB 0.00%↑ and Switzerland’s Credit Suisse CS 0.00%↑ are causing a lot of panic in the markets with fears that 2008 might repeat all over again.

The first version of this was initially published on LinkedIn, but it’s too important and too big to be left only there. So let’s let analyze this here again, with some extra spices and nuances.

The story 🗞 All begins with the impact.

$600 billion: what Lehman Brothers held in assets when they crashed and took the economy with them. 

$2000 billion+: what Credit Suisse and Deutsche Bank have in assets. That’s 3.3x more 😳

Once you put this into perspective, it doesn’t look good at all…

Biggest Bankruptcies in US history ranked by assets (source: visualcapitalist)

Therefore, it’s not surprising that many say that both banks are facing a 'Critical Moment' now. But is it actually the case, and if so, what lies in store for the world? Let’s take a look.

More on this 👉 As you can see from the graph below, Credit Suisse's credit default swaps (CDS) costs have hit the highest level since 2008. A CDS is essentially insurance purchased against a potential default. Also, it’s also worth mentioning that Credit Suisse’s CDS curve inverted on Monday, which means investors are rushing to buy protection against a default in the very near term. 

Source: Bloomberg, BondEvalue

The key concern here is not about CDS as such - it’s about what it signals. As you can see from the below graph, the CDS market accurately predicts the fall of Lehman Brothers. Ups 🤷‍♂️

Source: SeekingAlpha

Getting back to Germany, we must say that the state of the Deutsche Bank is quite similar. It has been trading at 0.3x tangible book value (TBV). TBV is what common shareholders can expect to receive if the firm goes to the wall. The current numbers have already been labeled to be “very distressing” by many.

Looking at the big picture, one of the key reasons why this is getting so much attention is because Credit Suisse and Deutsche Bank are Global Systemically Important Banks (GSIBs). They're all connected via counterparty risk. If one goes to the wall, it would inflict serious damage on the whole system. Deutsche alone has $47 trillion of gross notional derivatives exposure. That’s pretty massive when you think about it.

Source: Bank of International Settlements (BIS)

All of this is perfectly reflected in both banks’ market performance. The stocks of both banks have suffered an absolute rout so far. In this year alone, their stocks have fallen by more than 40%. Ouch 😳

Source: Google Finance

The end is near? 😳 So, from first glance, the situation seems pretty bad (to say it mildly) and it’s clear why many people call this Lehman Brothers 2.0. But let’s look at the fundamentals to have a better view.