This is the only thread you need to understand what Credit Suisse is doing

This relates to the earlier actions announced by the bank earlier that 1) it would take up CHF 50 billion from the SNB to shore up its liquidity and 2) it would go through Credit Suisse International to repurchase OPCO bonds. The latter is actually a very neat case of financial engineering that old school bankers would be proud of.

All of that is better explained in this thread (h/t@ Izabella Kaminska):

🧵Investors are slowly waking up to the fact that Credit Suisse may have Kobayashi Maru-Ed the market with some of the most ingenious financial engineering seen yet. We’re talking Wall Street Bets level of creativity to save a business they are too attached to let go of.

— Izabella Kaminska (@izakaminska) March 16, 2023

On the latter part, it looks very much like a neat interchange whereby we are seeing an equity transfer from the operation company to the holding company. As mentioned in the thread above, it essentially works in the same way as how the Terra-Luna relationship worked but just that instead this is all backed by fundamental assets.

In this instance, it isn't the case of using the equity to supplement for cash but instead Credit Suisse is using the bonds to supplement for equity.

This was also put in more simpler terms by the thread starter:

"CS are buying their own debt which is trading at cents on the dollar early and expiring it against book value. It means an instant profit. Why? Say you have a £1m mortgage which the issuer bank has sold on the market for £500k on fears you won’t ever pay it back, but suddenly your dad shows up and gives you a £500k loan so you can purchase it back and expire it. In such a scenario you have technically reduced your debt by £500k and materialized a saving (de facto income) on your balance sheet increasing your equity.

If your dad gave you that loan for zero interest when all the world was charging 4% you’ve also benefited from a major financial cost arbitrage. The process of buying the bonds meanwhile will have driven their market value up, lowering your cost of financing (which at this point is really the market reflecting your dad’s credit profile not yours).

So now you have a situation where if anyone tries to sell your bonds at below par value they are just handing you a profit as you will come in and buy them at the discount thanks to your dad’s unlimited credit card. This can go on until your dad runs out of money. In this case your dad is the Swiss National Bank. Good luck with that."

Essentially, this also allows the SNB to state that it isn't bailing out anybody and that is perhaps the most important thing that matters to the central bank Central bank A central bank is a financial institution that manages a country's monetary policy, and that often also includes issuing and/or monitoring the currency and regulating the money supply. Central banks also typically act as a lender of last resort to banks in times of financial crisis, and may also supervise and regulate banks and other financial institutions. Examples of central banks include the Federal Reserve in the United States, the European Central Bank, and the Bank of Japan.The chief task A central bank is a financial institution that manages a country's monetary policy, and that often also includes issuing and/or monitoring the currency and regulating the money supply. Central banks also typically act as a lender of last resort to banks in times of financial crisis, and may also supervise and regulate banks and other financial institutions. Examples of central banks include the Federal Reserve in the United States, the European Central Bank, and the Bank of Japan.The chief task Read this Term.