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Strategies & Market Trends : Lessons Learned

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From: Don Green3/24/2023 5:27:11 PM
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What Does AMC Stock Have to Do With the Collapse of Credit Suisse?Not so long ago, Credit Suisse predicted that AMC shares would reach less than a dollar per share. However, the tables have turned. Here's what you need to know.
Mar 23, 2023 8:48 AM EDT
Swiss bank Credit Suisse collapsed over the weekend and will now be acquired at a discount by rival UBS.Credit Suisse analysts had rated AMC shares as a "sell" and expected the stock to reach below $1.Credit Suisse's chairman blames social media and retail investors for the swift downfall of the bank.
Figure 1: What Does AMC Stock Have to Do With the Collapse of Credit Suisse?

Getty Images

Read also: GameStop (GME) Reports A Profit, Stock Goes Bananas. Short Sellers In Panic

What Happened to Credit Suisse?Over the weekend, Switzerland-based financial giant Credit Suisse ( CS) - Get Free Report collapsed. Shares of the bank are now worth less than $1.

But Credit Suisse's problems were no new development. The bank had struggled with financial losses, mismanagement, scandals, and liquidity concerns for years.

In 2021, Credit Suisse was one of the banks involved in the Archegos Capital Management scandal, which caused it $4.7 billion in losses.

Credit Suisse was also the lead investor in the failed Greensill Capital two years ago and was involved in an espionage scandal five years ago, along with other troubles.

Now rival Swiss bank UBS ( UBS) - Get Free Report is set to acquire Credit Suisse at a hefty discount.

What Credit Suisse's Chairman SaidThis week, Credit Suisse chairman Axel Lehmann was asked about the reasons behind the bank's collapse. His answer was surprising.

According to Lehmann, not only had the bank been overcome by risk, but it was also affected by an outdated business model.

He pointed out that the bank's customers had been loyal for quite a long time. However, since last autumn, a social media storm has targeted Credit Suisse, shaking the confidence of its investors.

Fox Business journalist Charles Payne tweeted that Lehmann deserves to be nominated for "Clown A$$ of the Year" for that statement:

When Credit Suisse Poked the Apes Last October, Credit Suisse joined the AMC Entertainment ( AMC) - Get Free Report bears. The bank's analysts rated the theater chain as a "sell" and forecast a price target of 95 cents.

Credit Suisse's main problem with AMC was the company's lack of profitability. According to Credit Suisse, even if attendance levels were to return to pre-pandemic levels, AMC would still need to see healthy returns on its balance sheet.

Apparently, the Swiss bank wasn't counting on this happening.

Credit Suisse's position on AMC has been interpreted by many individual investors as a case of the pot calling the kettle black. At the time, Credit Suisse itself was worth less than $4 per share and was already showing signs of approaching penny-stock levels.

With Credit Suisse's business already in turmoil, many in the market started to question its survival.

Investors began to turn their attention toward the rapid decline of Credit Suisse and, of course, its potential spillover effects.

The bank reported steadily decreasing revenues, losses from its Russian business, and also litigation costs. This forced the bank to drastically reduce its headcount at the end of last year.

Today Credit Suisse shares are worth less than $1, while AMC's stock trades for nearly $5 per share.

The Bottom LineThe collapse of Credit Suisse didn't happen overnight, nor did it have only one cause. There was an accumulation of factors that had already been weighing on the bank's outdated business model — along with many bad strategic decisions over the past years.

Perhaps the final blow came when retail investors on social media platforms scrutinized Credit Suisse's reputation. This possibly impacted the abrupt collapse of its share price.

AMC and GameStop ( GME) - Get Free Report are the most-talked-about stocks on social media sites like Reddit. Socially mobilized retail investors — also known as the "Apes" — believe that banks and institutional investors are the enemies of individual investors due to their unequal trading structures.

So it's not hard to understand why many retail investors root against financial institutions like Credit Suisse.

Even last October, when the social media storm hit Credit Suisse shares hard, company executives issued a memo telling employees not to confuse stock performance with the bank's capital strength and liquidity.

Since 2021, we've probably seen the most speculative stock market in history. The negative exposure of Credit Suisse on social media was just the icing on the cake.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)
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