Fifteen years ago, rumors were swirling around a major U.S. investment bank. The rumors persisted until the bank, Lehman Brothers, was forced to reassure investors that everything was fine.
As it turns out, everything wasn't fine. But if Lehman executives had been forthcoming, the stock would have crashed. This happened in April of 2008.
Lehman Brothers executives were buying time in an attempt to repair the bank's liquidity issues. Ultimately, they failed. Six months later, the stock was virtually worthless.
This week, Credit Suisse (CS) hit an all-time low when it was reported that regulators were reviewing comments made by the bank's chairman. Swiss financial regulators want to know if Credit Suisse Chairman Axel Lehmann was aware that clients were making significant withdrawals from the bank, despite his statements to the contrary.
It's hard to believe that Alex Lehmann and other Credit Suisse executives could be unaware that large withdrawals were being made from their bank. If they were hiding the truth, they were likely doing so for the same reasons that Lehman execs hid the truth fifteen years ago.
Regardless of the involvement of Swiss regulatory authorities, why should investors defer to Credit Suisse on this matter?
Perhaps they don't understand that the stock's chart has already revealed everything they need to know. In fact, the chart has been sounding the alarm since June of last year, and the stock has lost 57% of its value since then.
What does the chart tell us about Credit Suisse right now? The journey to oblivion continues unabated.
Credit Suisse continues to trend lower, and remains below its 50-day (blue) and 200-day (red) moving averages. Since the start of the year, the stock's volume has been consistently high on negative days and low on positive days (shaded yellow), a bearish sign.
Chart Source: TradeStation
Is Credit Suisse too big to fail? Yes, and it will probably receive a bailout at some point, in my view. While a bailout would ultimately keep the company in business, it's no guarantee that investors will profit.
Check out this long-term chart of bailout recipient Citigroup (C) . From this perspective, we see that Citi's stock never recovered from the 2008 financial crisis despite the bailout.
Chart Source: TradeStation
Ultimately, the problem might not lie with Credit Suisse itself, but with institutions that are closely aligned with the Swiss banking giant. That was one lesson investors learned in 2008.
It's incredible that fifteen years later, after all the stress tests and "too big to fail" rhetoric, we may be headed down this path again.
