MIAMI: Credit Suisse’s former CEO Tidjane Thiam, now executive chairman of the Freedom Acquisition Corporation, on Thursday talked about the risks he believes the banking sector will face in the years ahead but said that, overall, he is “quite comfortable” about its current state.
Speaking during a panel discussion at the Future Investment Initiative’s Priority conference in Miami, he said the industry is not fragile, and his confidence is based in part on the strength of the global economy.
“Most banking or financial crises have their roots in challenges in the real economy,” he said. “So, the real economy is strong, the banks are profitable.”
The current profitability of the banking sector and strong balance sheets further bolster his level of confidence.
“It’s really a liquidity crisis that generally leads to the failure of an institution, not capital,” he said. “So, overall, I’m quite comfortable.”
Still, the collapse of US-based Silicon Valley Bank this month, followed by the emergency takeover of Credit Suisse by rival UBS, have shaken the confidence of some, and there have been concerns that Deutsche Bank might be the next major financial institution to face a crisis.
However, Thiam blamed the panic, and recent moves involving securities linked to Deutsche Bank, on speculators. Deutsche remains profitable and is protected by the “backstops” put in place by the European Central Bank in 2012, he said.
“After the euro market closes, speculators go and short the CDS (credit default swaps), increase the spread on the CDS, then you get articles saying that Deutsche is going bankrupt, and then they go into the ADR (American depository receipt) market, which is very illiquid, where they take a position and make good money,” he said.
“So, you really have to distinguish what is going on in the real economy and those speculative positions taken by people, basically aimed at making money.”
He also warned about low interest rates and liquidity, saying: “Excessive liquidity has led people to take riskier positions, and everybody knows the famous Warren Buffett sentence: ‘When the tide goes down, you can see who has been swimming without trunks.’
“They are exposed, and you will see that every time you have a long period of a given state in financial markets, and when you come out of that there are some casualties at the interest rates. But I think overall, it’s healthy for the world economy to have more normal interest rates.”
