Cathay Financial Holding Co (國泰金控) has an exposure of NT$35 billion (US$1.11 billion) to troubled Credit Suisse Group AG, but it does not expect the Swiss company to impact global financial markets like the collapse of US investment bank Lehman Brothers did in 2008, Cathay Financial president Lee Chang-ken (李長庚) said yesterday.
Credit Suisse became the center of financial market turmoil after its CEO, Ulrich Koerner, acknowledged that the bank was facing a “critical moment” in its latest overhaul and the cost of insuring the bank’s bonds against default climbed about 15 percent last week to a level not seen since 2009.
Cathay Life Insurance (國泰人壽), the flagship unit of Cathay Financial, has invested about NT$35 billion in Credit Suisse bonds, Lee told reporters on the sidelines of an event in Taipei.
Photo: CNA
The insurer is closely monitoring the Swiss bank’s operations and financial stability, he said.
The price of Credit Suisse’s five-year credit default swaps has surpassed 250 basis points, and if they continue to climb, Cathay Life might re-evaluate the valuation of its investment and prepare to recognize some losses, Lee said.
However, Cathay Life is not yet obliged to recognize credit losses from the investment, as it only invests in investment-grade bonds and the ratings of the Swiss bank’s bonds have not changed, Cathay Life executive vice president Lin Chao-ting (林昭廷) said.
Photo: Reuters
Even though Credit Suisse has larger assets than Lehman did, it is not expected to cause the same financial crisis as in 2008 as global banks have improved their collaboration and supervision since then, Lee said.
“One of the major causes of the 2008 financial crisis was that people did not know clearly the transaction network and uncertainty is the biggest worry for financial market investors,” Lee said.
Now that the whole system is much more transparent, Credit Suisse does not pose a greater risk than Lehman if the matter is managed well, Lee said.
The Swiss lender yesterday said it would buy back up to 3 billion Swiss francs (US$3 billion) of debt, which indicated that it is confident about its liquidity, Lin said.
This could reassure markets about its financial stability, he added.
Credit Suisse’s credit default swaps yesterday fell 42 basis points from Thursday’s close to 308 basis points, Reuters reported.
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