Last month, I wrote about Credit Suisse (CS) and the ghost of storied U.S. investment bank Lehman Brothers. After Wednesday's action, which saw Credit Suisse trade below $2, I wonder if someday I'll be writing about the ghost of the Swiss banking giant.
Six months ago, I wrote that the Fed might be forced to pivot away from interest-rate hikes due to trouble at Credit Suisse. Admittedly, Silicon Valley Investment Bank (SIVB) and Signature Bank (SI) weren't on my radar at the time.
How was it possible to know in advance that Credit Suisse might require a bailout?
Anyone who's been paying attention to the charts knows that Credit Suisse has had serious problems for some time. The comparisons of Credit Suisse to Lehman Brothers go as far back as last June.
In fact, the weekly chart of Credit Suisse shows a series of bearish descending triangle patterns for the past two years. Institutional sellers are out in force, with Wednesday's volume skyrocketing as the stock hit new depths.
Chart Source: TradeStation
Credit Suisse is now the Two Buck Chuck of investment banks. How did we get here, and what will happen next?
Credit Suisse plunged early Wednesday when a key investor, the Saudi National Bank, signaled it would not provide further assistance to the Swiss investment bank. The Saudi National Bank already owns 10% of Credit Suisse, and its decision sent investors scrambling.
By late Wednesday, the stock rallied on word that the central bank of Switzerland, the Swiss National Bank, will backstop the beleaguered financial institution. Now that a bailout has been secured, should investors buy Credit Suisse?
The current situation is somewhat reminiscent of 2008, when Citigroup (C) traded at about $1. At the time, some traders referred to Citi as a "lottery ticket," due to similar pricing.
When you see Citigroup today trading at $44, keep in mind that a 1-for-10 reverse split occurred in 2011. If not for that reverse split, the stock would be trading near $4. This means Citigroup has never really recovered from its disastrous plunge in 2008, as we see on the monthly chart below.
Chart Source: TradeStation
Would I buy Credit Suisse here? No. Credit Suisse is a broken business. While it's possible to earn a profit from buying damaged goods, it's not recommended.
As I indicated earlier this week, I'm selling rallies and raising cash. I'm not buying anything right now, but if I were, it wouldn't be Credit Suisse.
