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Is Credit Suisse the European Bear Stearns Canary in the Coal Mine?

2008 was just so much fun. We all learned that even when a stock has been halved because they over-speculated in risky mortgage backed instruments, the masses were not supposed to sell, they were supposed to hold on to it because it was fine.

Right Jim?

Three days later:

Who can forget the CEO Alan Schwartz proclaiming that “the liquidity is fine and our balance sheet has not weakened at all,” on CNBC.

Thus the breaking news this afternoon within an exclusive from Reuters brings back some echoes of the past:

Credit Suisse weighs options to strengthen capital – sources

Just this quick excerpt from this must read article drops a hint that maybe things are not so wonderful in the land of chocolate and pricey watches:

“Credit Suisse is currently not considering raising additional equity capital,” the bank said in a statement.

“The Group is robustly capitalised with a CET1 ratio of 13.8% and a CET1 leverage ratio of 4.3%. Asset Management is an essential part of our group strategy presented last November, with four core divisions.”

The CET1 ratio is a key gauge of a bank’s financial strength.

Where oh where have we heard that before?

Oh, that’s right, back in 2007, 2008, and 2009. The footsteps of corruption and crony capitalism are getting louder and as this Financial Times article highlighted on May 11th, the problems might be much worse than publicly disclosed:

Credit Suisse admits lax approach led to scandals

Stay tuned as this could just be the first shoe of many to drop not just in Europe, but in North America as stagflation along with geopolitical instability begins to expose those financial institutions who were swimming naked in the liquidity tsunami the world’s central banks unleashed.

Pay attention to the CDS on Credit Suisse debt in the coming weeks because if it begins acting like Bear in 2008, the dam is about to burst.

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