[HN Gopher] Credit Suisse finds 'material weakness' in reporting...
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Credit Suisse finds 'material weakness' in reporting, scraps exec
bonuses
Author : Octokiddie
Score : 245 points
Date : 2023-03-14 14:03 UTC (9 hours ago)
(HTM) web link (www.cnn.com)
(TXT) w3m dump (www.cnn.com)
| hnthrowaway0315 wrote:
| On a side note I think I figured out part of Fed's plan.
|
| Basically the key is to stimulate inflation so that they get the
| chance to hike rates. By doing so many people choose to stop
| investing in stocks, funds and more on longer term saving
| accounts.
|
| Essentially this heals the asset-liability structure of financial
| institutions. They now have liabilities of longer term so they
| can issue longer term loans. This eventually will stimulate real
| economy.
| vuln wrote:
| Increase inflation to remove more money from the system and
| encourage the _correct_ investment at the moment will
| eventually stimulate the economy?
| VHRanger wrote:
| The fed respond to inflation *AND* unemployment rate, and they
| respond to their own forecasts of those things.
|
| The fed didn't stimulate inflation by choice. The rates were at
| 0 for most of the decade and inflation was very low.
|
| Increasing interest rates was a response to inflation --
| partially created by QE and stimulus spending, supply chain
| disruptions, and other supply/demand shifts.
|
| As for how interest rates work: they make borrowing more
| expensive. There's a bunch of second-order effects from that
| but borrowing cost and time value of money are the main thing
| to keep in mind.
| ROTMetro wrote:
| The Fed wants to push unemployment. To save the economy
| previously they injected tons of money and need Billionaires
| and big businesses (because the injection process is not
| directed to your average mom and pop) to use that money. Now
| that they need to reduce money, they take away jobs for the
| working class. Nice system. Free government money to some and
| government pushing for you to lose your job for others, the two
| levers the Fed loves.
| mohamedattahri wrote:
| The FED is not trying to push unemployment, they just accept
| it as a cost to curb inflation which is always enemy number
| one. Interests rates and unemployment are correlated; you
| make borrowing more expensive, people invest less and become
| more conservative, often by trimming.
|
| EDIT: Fixed correlation sign.
| balozi wrote:
| I understand 'material weakness' to mean
| falsified/faked/misleading/corrupted. 1) what happened to basic
| language?, 2) do the legal/PR people using these words honestly
| believe they are fooling anyone?
| Red_Leaves_Flyy wrote:
| Just the commoners. Blue collar and lower social status folks
| would riot if they knew the full extent of what white collar
| crime lords get away with.
| hef19898 wrote:
| They wouldn't. Proof: Nobody cared about Cum-Ex. Nobody
| revolted after 2008 neither.
| Red_Leaves_Flyy wrote:
| Nobody cared or the proletariat was coincidently not shown?
| this scandal seems to have been completely swept under the
| rug lending my argument credence. Also, were you living
| under a rock during occupy? These movements got
| systematically infiltrated and dismantled by Fed's using
| obscene methods, like getting suspects pregnant. It's
| unlikely we'll ever actually know how bad their methods
| were because they were successful at forcing people back
| underground. Make no mistake though, these people are still
| around and still agitating, they're just smarter now.
| bryceacc wrote:
| >dismantled by Fed's using obscene methods, like getting
| suspects pregnant
|
| do you have a source? this sounds nuts
| SCUSKU wrote:
| I wouldn't say nobody, you did have the Occupy Wallstreet
| protests after all. That said, it wasn't the French
| Revolution...
| omgomgomgomg wrote:
| CS ceo literally got away with a verbal warning by the
| regulatory body finma for a blatant lie.
| lazide wrote:
| They're covering their asses so they don't get sued for
| defamation.
|
| If they say 'fraud', 'theft', 'lying' they are implying intent,
| which can be hard to prove (maybe they were just incompetent or
| mislead by someone else?).
|
| A material weakness means there is a significant to the
| business (aka material) difference between what was
| written/reported, and what investigation found was true.
|
| WHY that is doesn't matter for the purposes of clawing things
| back, and since they have solid proof of it, there you go.
|
| Speculating on the reason or if a crime was committed until
| it's proven in a court of law is what gets high powered and
| highly paid attorneys excited, and the folks who are getting
| fired and the money clawed back can still afford those in
| spades even afterwards. Credit Suisse probably feels they
| already have enough problems.
| youainti wrote:
| My understanding is that "material" is a technical term in
| accounting. A "material" effect is one that will have a
| noticable impact on the business.
|
| Example: $100 missing from a single petty cash account would
| have almost no impact on a multi-site business and wouldn't be
| reported as "material" losses. $100 missing from every petty
| cash account would be different and probably would be reported
| as a "material" deficiency because it means there is an issue
| with controls.
|
| disclaimer: My experience with accounting is a single
| accounting class and having run a budget for a business with
| $60k monthly for a few months before I left.
| tawwwwaway wrote:
| That's correct. And the fact that the board disclosed it rather
| than the auditors is a big "we're caught"/"emperor has no
| clothes" moment. Who's the audit firm and when are they losing
| their license?
| duxup wrote:
| I assume this is the step you take before firing them as a shot
| across the bow to quit or otherwise go away?
| IG_Semmelweiss wrote:
| I feel like this started with the US-accounts fishing expedition
| that was started by a disgruntled Manager in the Swiss banking
| side.
|
| Banking in switzerland has not been the same since. And US
| citizens are effectively kryptonite for swiss banks too.
| MrMan wrote:
| If there is any bank that should be dismantled it's CSFB but it's
| survived this long by getting big enough that regulators are
| afraid to break it up
| JCM9 wrote:
| CS has had a range of challenges with its leadership and
| operational practices for years. This is just the latest in a
| string of events, some of them borderline just bizarre, calling
| into question the competency of the bank's leadership its and
| long term direction.
| pulse7 wrote:
| Credit Suisse shares are at an all-time-low today...
| trosi wrote:
| You could print that statement and hang it on the front door,
| cause it's been true almost every day of the past few months
| omgomgomgomg wrote:
| The UBS id doing just 20% better.
| gadders wrote:
| The thing is with the big Swiss banks like UBS, Credit Suisse etc
| is they regularly oscillate business models between "We are a
| full service universal bank" and "We are a private bank with a
| bit of investment banking attached to keep our HNWI clients
| happy."
|
| Where they are in that cycle typically depends on how much money
| investment banking/trading made over the previous year or two.
| janeway wrote:
| Credit Suisse is a investment bank. UBS is a typical personal
| bank for majority of Suisse people and they also offer a few
| personal investment options. They have a separate investment
| side.
| gadders wrote:
| Credit Suisse has a large private banking/wealth management
| function as well as an investment bank.
| Wonnk13 wrote:
| I've been watching this firm slowly die via a thousand self
| inflicted wounds since 2016. I wish someone had the courage to
| just close up shop instead of barely limping along.
| curiousgal wrote:
| Tangent: I guess the silver lining in proofreading mistakes is
| that the content wasn't generated by ChatGPT.
| expertentipp wrote:
| > setting aside 1 billion Swiss francs ($1.1 million).
|
| Billion, million, googol, whatever. For CNN and Swiss bankers
| it doesn't make difference. Executives assuring that everything
| is all calm and orderly means how many breaths it has left?
| withzombies wrote:
| Is this one of those billion = long million mistakes in some
| languages? Not everyone agrees that a billion is 1000 million
| and it can get really confusing sometimes.
|
| > Other countries use the word billion (or words cognate to
| it) to denote either the long scale or short scale billion.
| (For details, see Long and short scales SS Current usage.)
|
| > Milliard, another term for one thousand million, is
| extremely rare in English, but words similar to it are very
| common in other European languages.
|
| https://en.wikipedia.org/wiki/Billion#:~:text=Other%20countr.
| ...
| expertentipp wrote:
| Billion and Milliard are commonly mistaken between SI and
| "imperial" countries. Million (10^6) is rather unequivocal.
| moffkalast wrote:
| I mean it's a billion CHF, Michael, what could it cost? 10
| dollars?
| TheCleric wrote:
| There's always money in the banking stand.
| expertentipp wrote:
| I'm afraid we have bad news for dollar-speaking investors,
| sir.
| antibasilisk wrote:
| ChatGPT can generate proofreading mistakes
| CWuestefeld wrote:
| If it's built from content on the web, how can it avoid doing
| so?
| tialaramex wrote:
| Probabilities matter. So the machine ends up with a model
| of human language, in which errors are present but
| uncommon, same trick a child is doing. For other reasons I
| was looking recently at the Wug test. If you run that test
| on very young kids in Japan, two year olds pass no
| problems, in Japanese there's no plurals so, "1 Wug" => "2
| Wug". But English native kids at this age struggle, "1 Wug"
| => ??? they're aware there's a rule for how this works, but
| they aren't yet confident what the rule _is_. A year or two
| later, "1 Wug" => "2 _Wugs_ " they have learned the rule,
| make plurals by adding a -S sound to the word.
|
| I expect ChatGPT can pass the wug test. In fact, unlike a
| random two year old it will certainly have read about the
| actual Wug test, so definitely don't ask it about that word
| in particular, make up a new word.
|
| Now, human kids are learning a spoken language, the model
| is learning a written language, but they're both linear so
| it's not _that_ different.
| pixelpoet wrote:
| Dictionaries are pretty effective
| [deleted]
| steponlego wrote:
| Contagion is spreading now. It's interesting that we're calling
| it "contagion" isn't it? I think the real problems are deeper,
| like cancer, and it's systematic. This isn't just a light cough
| with some sniffles. We're talking a body riddled with pus-filled
| tumors.
| kelseyfrog wrote:
| Impossible, despite collapsing every 7-10 years against every
| imaginable mitigation, this the best system we've got.
| JumpCrisscross wrote:
| > _Contagion is spreading_
|
| Not to Credit Suisse. They had their run in November [1]. That
| they remain stable after this disclosure is evidence against
| contagion, not for it.
|
| [1] https://www.wsj.com/articles/credit-suisse-warns-
| of-1-6-bill...
| ericmay wrote:
| Ok. How is what you are saying falsifiable? What do you even
| mean that "contagion is spreading"? What is the specific claim
| or prediction that is being made?
| jimnotgym wrote:
| Except this was a disease spread deliberately in order to make
| more money
| losteric wrote:
| Maybe _that_ is the disease? greed, sociopathy... money
| worship
| mnd999 wrote:
| That's the normal state of things in Wall Street. Do whatever
| you can to make money, greed is good etc. They're not fools
| though, it only works if there's some truth in it.
| mr_00ff00 wrote:
| Not to defend Wall Street, but people act like "greed is
| good" only applies to them.
|
| You would have to be blind to not see every industry and
| person, from execs to engineers, seeing greed is good. I
| mean, weren't 400k+ google engineers unionizing? Are the
| start-up craze of the past 10 years and crypto craze in
| 2020 just a bunching of people trying to get rich quick?
| salawat wrote:
| I wouldn't call 400k google engineers unionizing
| "greedy". I'd call it a response to greed.
| timcavel wrote:
| [dead]
| orangepurple wrote:
| This is the foreshock that occurs before the larger seismic event
| and they are washing their hands clean so they aren't criminally
| liable when the organization fails later this year. Look at the
| Credit Suisse 5 year CDS chart so see how the market is pricing
| their risk.
| psychlops wrote:
| Why do you believe there is hope of criminal charges? All
| indications show that banks simply get propped up and the
| incompetence remains unpunished.
| CSMastermind wrote:
| I've been hearing for 9 months now that people think they're
| going under but I haven't heard a concise explanation of why.
| Can someone with more knowledge of the situation provide one?
| JumpCrisscross wrote:
| > _Can someone with more knowledge of the situation provide
| one?_
|
| They lost money on Archegos and Greensill, had a run in
| November, have run through a bizarre set of CEOs (one had a
| PI follow a wealth manager who was suspected of defecting)
| and generally been the poster child of big bank
| mismanagement.
| matt_s wrote:
| I think part of it is general laypeople (like myself) think
| Archegos and other failures we've heard about are in the
| past. I wonder if the reality is that Credit Suisse (or
| other banks) still hold onto whatever losses resulted from
| those failures and then try various things to shore
| up/mitigate those losses as a business should do. When
| they've exhausted those various methods and/or the value of
| other assets (securities, bonds, bundles of loans aka MBS,
| etc.) have gone down dramatically then their balance sheet
| is a mess. There could be a point of no-return somewhere
| along the line if they've been horribly mis-managed and
| taking on or permitting customers to take on too much risk.
| That point of no-return might mean contagion to other
| banks/financial firms.
| skrtskrt wrote:
| they're also the poster child - over many decades - of
| letting fraudulent/organized crime money run through their
| systems, with the associated lack of controls and morals
| that comes along with that
| Iwan-Zotow wrote:
| Pecunia non olet
| shapefrog wrote:
| I've been hearing for 9 years now that people think they're
| going under ...
| pjc50 wrote:
| They're corrupt/mismanaged:
| https://www.reuters.com/business/uks-fca-puts-credit-
| suisse-...
| trillic wrote:
| The CDS market is pricing in an approximately 10% chance of $CS
| failing in the next year.
| alexpetralia wrote:
| Out of curiosity, how did you calculate this?
| FormerBandmate wrote:
| Credit default swaps pay the full value of a bond when a
| bond defaults, and pay nothing when it doesn't. If a 1-year
| CDS is 10% of face value there's a 10% chance of default in
| a year
| mason55 wrote:
| I'm not a quant or banker but I don't think that's true.
| When a credit event is triggered, there's an auction for
| recovery of the defaulted bonds/loans, and then recovery
| is what's left from par.
|
| In addition, you have to take net present value of the
| settlement into account. Money compounds, it doesn't grow
| linearly. Let's say there's a 10% chance of a credit
| event in a year, a 0% chance today, and the chance grows
| linearly (27 bps/day). Even if the chance of a credit
| event grows linearly, and you hold the recovery rate
| steady, the net present value of the recovery amount
| grows as a function of _e_.
|
| All that to say, I don't think what you are saying is
| correct.
|
| See here for the correct formula:
| https://news.ycombinator.com/item?id=35154072
| a4a4a4a4 wrote:
| Not the person you're replying to, but you can calculate
| the "implied volatility" using the current option pricing
| vs the current stock price. As the consensus of price
| movement (up or down) increases, the option prices go up.
|
| https://www.optionsplaybook.com/options-introduction/what-
| is...
| trillic wrote:
| Implied probability of default over a given time-span can
| be approximated with the equation P = 1 - ( e ^ ( ( -S * t
| ) / ( 1 - R ) ) where S is the CDS spread and R is the
| recovery rate.
|
| The spread can be solved using the inverse S = ln ( 1 - P )
| * ( ( R - 1 ) / t )
|
| Probabilities and rates are both expressed as percentages
| not basis points.
|
| S is the spread. t is years. R is the recovery rate.
|
| Source is my notes from undergrad. Options, Futures, and
| Other Derivatives (9th Edition) by John C. Hull. Take all
| this with a grain of salt as I am not a quant. (but I am
| looking for a job!)
|
| Doing some additional reading, there are some more precise
| approximations but they are less general.[1]
|
| Last number I was able to pull up the $CS CDS was trading
| at 551 BP. Up from 446 yesterday (an all-time high for $CS)
|
| Lehman Bros hit 640 BP just days before collapse.
|
| [1] https://quant.stackexchange.com/questions/15986/how-to-
| compu...
| time_to_smile wrote:
| Thanks for sharing this.
|
| Quantitative finance really is a fascinating field, not
| because it will make you rich, but because you can dive
| much deeper into understand _exactly_ what the market
| believes about the probability of different events.
|
| Of course what the market believes doesn't have to be
| correct, but nonetheless very interesting to dive into.
| lordnacho wrote:
| What did you use as the recovery rate?
|
| Weird thing about the recovery rate is that everyone I've
| asked says the same thing, and I've traded CDS: the
| recovery rate is 40%. It's a bit of a free variable in
| that equation, and it matters. Trouble is how on earth do
| you estimate it? But random people I've met in the
| business will just say 40%, for every issuer, somehow.
| trillic wrote:
| Yup 40%, it's in the textbook, and as the other commenter
| nicely put it, it also seems like the financial
| equivalent of dark matter to me.
|
| We are living in times of idiosyncratic risk and my
| approximations above are likely no better than hearsay.
|
| That being said I'm not rushing to buy or sell $CS stock
| even with my elevated risk tolerance and the seemingly
| low price.
| 6stringmerc wrote:
| I'm very interested in your term "idiosyncratic risk"
| having worked the Street and particularly fond of
| synthetics / swaps / GICs / etc. as a platform.
|
| My mental picture is a very unsteady hub and spoke like
| in Wipeout or something where the parties and counter
| parties are intertwined in ways that the dynamics are, as
| you put it, idiosyncratic.
| cuteboy19 wrote:
| What do you mean by idiosyncratic risk here? It seems as
| though you just read the word in an online forum where it
| was used in an context free manner. Read through
| investopedia.com/terms/i/idiosyncraticrisk.asp and tell
| me how it applies here?
| jmillikin wrote:
| It's a bit gutsy to ask someone who casually drops a CDS
| valuation formula into a conversation to justify
| themselves against an Investopedia article, as if a
| retail-oriented content farm is the definitive resource
| on finance.
|
| To answer your question, "idiosyncratic risk" in this
| context means that an individual company might have
| problems that don't broadly apply to the rest of its
| industry. For example Credit Suisse might have management
| that is bad at running a bank, leading to repeated
| investment losses and regulatory actions well beyond
| what's normal for big multinational banks.
|
| Look at the CS balance sheets over the past few years, or
| its stock price and PE ratio, or hell just Google "Credit
| Suisse books loss" and look at how many times they tried
| to stick their fingers in the wrong cookie jar. They got
| hit by the Hwang thing, they got hit by Greensill, and
| apparently they can't even accurately report how much
| money they're making (losing).
|
| I wouldn't want to have any position on their equity
| either.
| oakwhiz wrote:
| Sounds like the financial version of dark matter
| WastingMyTime89 wrote:
| It's not necessarily.
|
| A peculiarity of finance as a field of study is that a
| lot of the people studying finance only care about direct
| applications and a lot of the people teaching finance had
| this mindset when they learnt.
|
| It's easy to end up with some poorly taught material. If
| you carefully looked at the model which gave rise to the
| equation you are considering, there probably is a very
| tangible meaning to the figure everyone is ball parking.
| itronitron wrote:
| >> there probably is a very tangible meaning to the
| figure everyone is ball parking
|
| 40 is awfully close to 42
| lordnacho wrote:
| A fudge factor that makes your models agree with
| observation? Yeah, pretty much. I was never an expert in
| CDS so I always wondered if other people had better ways
| of dealing with it. But nobody I've come across has ever
| offered anything other than 40%.
| curiousgal wrote:
| Not really. Quants modelled stochastic recovery rates and
| they saw that it doesn't really add much. Fixed recovery
| rates work just fine.
| [deleted]
| hd95489 wrote:
| They should have another factor for government
| shenanigans where a entity defaults but the cds isn't
| recognized as a default
| omgomgomgomg wrote:
| Can you check how that data looked for ubs and CS before
| they habe been bailed out?
|
| I am certain the Swiss government will bail them out,
| direct democracy be damned.
| slt2021 wrote:
| Switzerland's wealth is tied to the reputation of their
| banks being top tier.
|
| Swiss bankers already lost a lot of customers to US
| banks, letting CS fail would have very bad consequence on
| Swiss economy long term
| nafey wrote:
| Coincidentally, I am in a class being conducted by John
| C. Hull right now as I type this comment.
| chasd00 wrote:
| Put your phone down and pay attention! ;)
| SeanAnderson wrote:
| I'm surprised it's only 10%. This morning was a very strong
| rally for beleaguered banking stocks and CS didn't budge an
| inch.
| bushbaba wrote:
| Because credit Susie is "to big to fail" with the CDS
| likely pricing in the change of a government bail out
| topper-123 wrote:
| Even if if doesn't fail, the shareholderd might be wiped
| out though.
| HDThoreaun wrote:
| Shareholders being wiped out doesn't affect bond holders.
| warbaker wrote:
| Usually bondholders are also wiped out during a bailout.
| Bailouts are generally for customers / counterparties,
| not investors.
|
| Sometimes in a bankruptcy, bondholders take a "haircut"
| and agree to get less money back because the company
| simply can't pay them what they're owed.
| latchkey wrote:
| What if bond holders are shareholders?
| rblatz wrote:
| Their share value will be wiped out, and their bonds
| won't be.
| ren_engineer wrote:
| yeah, there have been rumors about Credit Suisse for close to a
| year. They are in bad shape, along with plenty of other big
| banks
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