Credit Suisse Bank could file for bankruptcy

According to credit insurance papers, a bankruptcy of Credit Suisse is more likely than a default by Greece.

Punters believe a bankruptcy of Credit Suisse (CS) is more likely than a default in Greece, Indonesia or Mexico. Among the large banks active in Europe, only Eurobank Ergasias and Hamburg Commercial Bank are classified as riskier.

Eurobank Ergasias is the third largest bank in Greece and is still worth CHF 2.8 billion on the stock exchange. Hamburg Commercial Bank is a successor company to HSH Nordbank, which was rescued several times during the financial crisis and subsequently produced a whole series of scandals.

More risk than Mexico

CS also offered scandals again and again. No wonder the bank is no longer trusted quite as much as other institutes. Creditors of CS currently have to pay an insurance premium of almost CHF 2.26 if they want to insure a CS bond with a nominal value of CHF 100 for one year. The premium has increased rapidly in recent weeks. At UBS, the corresponding premium is 84 centimes. The premium for Indonesia is CHF 1.62, for Greece CHF 1.82 and for Mexico CHF 2.02.

This can be seen in the prices of credit default swaps (CDS). Put simply, these papers are insurance against the insolvency of a company or a state. Unlike property insurance, CDS do not require you to actually hold debt securities of the company or government in question, which many commentators are very critical of.
Insure the neighbor's house

If you want to take out property insurance, you usually have to be the owner of the property. Insurance would not allow someone to insure their neighbor's house. Only the owner himself can take out insurance for his house.

This is not the case with CDS. Even those who do not own any CS bonds can take out insurance on them, buy a CDS. The result: the buyer has an interest in CS becoming insolvent because he or she can make a profit. This entails dangers, which is why the CDS are often hotly debated. Because it could be worthwhile for their owners to drive the corresponding company (such as CS) into bankruptcy.