February 6, 2018 / 1:42 PM / 4 months ago

Breakingviews - Volatility shock knocks Credit Suisse’s new image

LONDON (Reuters Breakingviews) - Credit Suisse’s reputation is taking a knock from a shock surge in global stock market volatility. The value of an exchange-traded fund set up by the Swiss bank to benefit from calm markets has collapsed due to recent turbulence. While the financial damage to Credit Suisse is minimal, it’s an unwelcome reminder of past mistakes. The reputational fallout could be more severe.

The logo of of Swiss bank Credit Suisse is seen at an office building in Zurich's Oerlikon suburb, Switzerland July 27, 2017. Picture taken July 27, 2017

The VIX Index, a measure of U.S. equity volatility, more than doubled on Monday, triggering a slump in the value of exchange-traded products that only make money when equity moves are muted. One that was issued by Credit Suisse lost more than 80 percent of its value. Peers marketed by other banks also fell sharply. There was a knock-on effect on bank share prices.

One reason why Credit Suisse was in the eye of the ensuing market storm was that it had a 32 percent stake in its own VelocityShares product, which was launched in 2010. The bank said it had not suffered any loss and that its exposure to the U.S. product was fully hedged. Investors may, however, view this as the sort of behaviour that the lender has often claimed was in its past.

Chief Executive Tidjane Thiam has focused more on developing wealth management than investment banking, cutting costs and the value of the risk assets on its books. Even so his bank has become ensnared in volatility drama as the seller and part-holder of an exchange-traded product whose value has pretty much gone up in smoke. Market volatility is translating into unwanted gyrations in its reputation.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below