Credit Suisse Crash and Debt Increase: Is the Market Approaching Its Lehman Moment?

The market may be nearing its Lehman moment yet again, according to Art Cashin, the director of floor operations at UBS.^[0] Panic has spread overseas to Credit Suisse, which saw its stock plunge 30% in a day after a top shareholder said it could not provide further financial support due to a regulatory limit.^[1] Cashin said certain market participants may be trying to “agitate things as much as possible” for their own financial gain.^[1]

The European Central Bank is seen scaling back rate hikes at its meeting on Thursday and Goldman Sachs analysts lowered their 2023 GDP forecast on March 15 citing a pullback in lending from small- and medium-sized banks.^[2] JPMorgan Chase & Co. predicted that the US economy could suffer a decrease in its gross domestic product by 0.5-1% due to the decreased lending activity that has occurred since the recent banking-sector issues.^[3]

The amount of debt Americans are carrying has soared.^[4] Credit card balances increased by $61 billion to a record high of $986 billion in the last quarter of 2022 and the percentage of credit card holders carrying debt from month to month has increased to 46%, up from 39% a year ago.^[4] Auto loan balances have risen and delinquencies have been steadily rising from their pandemic lows.^[4]

Further spooking markets on March 16, First Republic Bank, which was downgraded by both S&P Global Ratings and Fitch Ratings on March 15, is exploring strategic options — including a sale.^[5]

The confidence crisis in Credit Suisse Group AG, a significant contributor to the worldwide financial system, is intensifying, and the potential of a bank-lending crisis that could cause economies to enter a recession is growing.^[3] The risk is that the turmoil in the banking sector can tighten the credit squeeze already set in motion by interest-rate increases and lenders will now be far more concerned with shoring up their own finances than providing the loans that enable economies to grow.^[3]

0. “The market is on the verge of a Lehman-style event as the financial world thrashes in the wake of global banki” Business Insider India, 17 Mar. 2023, https://www.businessinsider.in/stock-market/news/the-market-is-on-the-verge-of-a-lehman-style-event-as-the-financial-world-thrashes-in-the-wake-of-global-banking-turmoil-veteran-trader-art-cashin-says/articleshow/98741749.cms

1. “The market is on the verge of Lehman-style event amid banking turmoil” Markets Insider, 17 Mar. 2023, https://markets.businessinsider.com/news/stocks/stock-market-outlook-ubs-svb-bank-crisis-lehman-art-cashin-2023-3

2. “Recession Fears Soar as Credit Suisse Woes Threaten Loan Crunch” Yahoo News, 16 Mar. 2023, https://news.yahoo.com/recession-fears-soar-credit-suisse-062207564.html

3. “Analysis | Behind the Banking Crisis, an Era of Easy Money's End: QuickTake” The Washington Post, 19 Mar. 2023, https://www.washingtonpost.com/business/2023/03/19/the-era-of-easy-money-is-over-what-does-that-change-quicktake/65a5f4b0-c60d-11ed-82a7-6a87555c1878_story.html

4. “Shrinking savings and rising debt leave consumers on shaky financial footing” AOL, 18 Mar. 2023, https://www.aol.com/news/shrinking-savings-rising-debt-leave-110511051.html

5. “Odds of Recession Increase 10% After Bank Failures” Yahoo Entertainment, 16 Mar. 2023, https://www.yahoo.com/entertainment/odds-recession-increase-10-bank-155731909.html