When is a bank rescue not a bank rescue?
That’s the question investors have been asking themselves all day.
Over the weekend, news broke that UBS would buy rival Swiss mega bank Credit Suisse for pennies on the dollar.
The Swiss central bank brokered the deal. And it was supposed to stem the loss of confidence in Credit Suisse.
Instead, it sent shares in Credit Suisse plunging…
The UBS deal has also wiped out about $17 billion worth of Credit Suisse bonds. Anyone who holds them has taken a 100% loss. And this is causing waves of panic in the market for bank bonds.
This is a big deal…
When Lehman Brothers collapsed in September 2008, it triggered a contagion in the financial sector. This led to the Great Recession, which wiped out nearly $2.4 trillion in retirement savings and led to 9 million job losses.
And Credit Suisse’s balance sheet is twice the size Lehman’s was when it collapsed.
So, today, let’s take a closer look at the implosion of Credit Suisse… how it could trigger the next wave of the banking crisis… and why we’re more bullish than ever on “anti-bank” technology bitcoin.
UBS will buy Credit Suisse for $3.2 billion….
That may sound like a lot. But it’s only about 4% of Credit Suisse’s book value. That’s what you’re left with after you subtract a company’s liabilities from its assets.
And it’s only roughly 10% of Credit Suisse’s market value at the start of the year.
UBS is in the position to drive a hard bargain. If it declines to participate in the rescue, Credit Suisse will collapse. And Swiss regulators don’t want that to happen.
But the deal’s bargain basement price tag suggests a large swath of the $570 billion in assets on Credit Suisse’s books may be impaired.
If that’s true, it could trigger the kind of contagion we got in 2008 after the Lehman collapse.
That’s why bitcoin has been rallying…
As I showed you last week, bitcoin was born in the wake of the 2008 financial crisis as an antidote to the bank instability.
The problem with leaving your money on deposit with a bank is that it makes you a creditor of that bank.
Banks don’t keep vaults of cash to back all deposits. When we say we have $1,000 on deposit, what we really mean is we have an IOU for $1,000 from the bank. If that bank goes bust, that IOU can become worthless.
Bitcoin is different. It’s nobody else’s liability. So, you don’t have to store it with a third party like a bank. You can self-custody bitcoin in a digital wallet app on your phone.
And bitcoin has proven its worth through the recent panic. Since the troubles in the U.S. banking sector began two weeks ago, it’s been running without a hitch.
And as bank shares have bombed, bitcoin has soared…
As you can see, bitcoin is up by 69% versus a fall of 29% for regional bank stocks.
Swiss banks were supposed to be the safest place for your money…
And Swiss bankers were supposed to be the world’s top stewards of capital.
But a string of scandals at Credit Suisse has trampled on that idea. As Bloomberg reports…
Credit Suisse’s failings included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media. Its willingness to engage with clients that some other banks avoided, such as disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management, lost it billions of dollars and compounded the sense of an institution that didn’t have a firm grip on its affairs.
This sounds like the plot of a Frederick Forsyth thriller novel, not the goings on at a 167-year-old Swiss financial institution.
And it’s deeply ironic…
Ever since bitcoin launched in 2009, its detractors have been going on about crypto-linked crime.
It’s true that a tiny percentage of crypto transactions (just 0.15%, according to Chainalysis) are related to criminal activities. But the claim that this problem is unique to bitcoin is rank hypocrisy.
As Credit Suisse makes clear, it’s also true of the banking system.
That’s why we should expect bitcoin to continue moving higher…
I’ve been banging the drum on this idea a lot lately. But it’s one of the best moves you can make with your money as the banking crisis unfolds.
Up until last week, most folks hadn’t seen much need for cash you can self-custody. They’ve been happy leaving it in the bank.
That will change as more folks realize how unstable banks have become.
And as colleague and world-renowned crypto investor Teeka Tiwari has been telling his readers consistently now for years, the most bullish driver for bitcoin is adoption.
But that’s bitcoin… he says now is NOT the time to bet on a broader crypto rally.
Teeka says a crypto panic will hit this month…
And he’s been warning that it will catch millions of crypto investors by surprise. Teeka…
Many Americans are using this rally to speculate in meme coins… and a bunch of other fraudulent projects. This coming panic will wipe them out…
But not in a way you’ve ever seen before. The big mistake everyone is making is they think the entire crypto space will have an explosive rally… and they are horribly wrong.
The next huge rally won’t carry the whole market higher. Just a tiny fraction of it will benefit.
So go ahead and buy some bitcoin to profit as the banking crisis plays out. But don’t touch any other crypto until you watch Teeka’s event this Wednesday, March 22 at 8 p.m. ET.
It’s called The Crypto Panic of 2023. And it’s Teeka’s first big event of the year.
He’ll reveal what will cause this panic… how you can use it to potentially turn $1,000 into an entire nest egg… and how to get paid month after month in the process.
So, click this link to reserve your spot. We’ll add your email address to Teeka’s RSVP list.
Regards,
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Chris Lowe
Editor, The Daily Cut