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Under Pressure: Credit Suisse Dealing With Fallout From Increased Interest Rates

By Luis Miguel Tejada

The governing council of the European Central Bank (ECB) will be meeting this Thursday on March 16th to set the key interest rates for the Eurozone. A possible interest hike will likely affect embattled bank Credit Suisse. Pressure for this Swiss banking group has been mounting in the lead up to the ECB’s meeting as prices for its corporate bonds have dropped materially on the morning of March 15th; market participants are now pricing Credit Suisse’s 9.75% PERP bond as low as 30 cents on the dollar compared to a week ago when prices oscillated around 85 cents on the dollar (Figure 1).

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Credit Default Swap (CDS) spreads for Credit Suisse have previously reacted to interest rate decisions taken by the ECB as the risk premium associated with financial instruments tends to rise in response to rate hikes (Figure 2).