The MSCI World Banks Index is composed of large and mid-cap stocks across 23 Developed Markets countries. All securities in the index are classified in the Banks industry group (within the Financials sector) according to the Global Industry Classification Standard (GICS®). Morgan Stanley Group’s methodology aims at providing exhaustive coverage of the relevant investment opportunities set with a strong emphasis on index liquidity, investability and replicability. The index is reviewed quarterly — in February, May, August and November — with the objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue index turnover. During the May and November semi-annual index reviews, the index is rebalanced and the large and mid-capitalization cutoff points are recalculated.

The index began underperforming in August 2022, but over the course of last week, September, 26-30, 2022, the downfall apparently accelerated. What happened and why?

Credit Suisse (CSGN.S) credit default swaps dropped to a 14-year high contributing to the banking giant’s collapse rumors. Credit default swaps are loosely interpreted by investors as a gauge for default risk. The comparison to Lehman Brothers is, however, hardly relevant at this point. Reality, however, is that Credit Suisse needs to do something and the current rumors won't help the Swiss bank. With negative attention for Credit Suisse, it is a bad time to be a shareholder, even after a 56% decline this year.

In fact, according to Chief Executive Ulrich Koerner who wrote a staff memo on Friday, Credit Suisse still has solid capital and liquidity, and the bank is expected to announce the outcome of a strategic review next month (now, the bank’s management is pressing ahead with its strategic review that is rumored to include potential divestitures and asset sales).

When it comes to stock price, the banks year-to-date as well as its one-year performance show declines around 56% which, some speculators say, is proof that things are going awry for Credit Suisse. Separately, the increase in the credit default swap spreads is being used by speculators as a barometer for risk of default with comparisons made with Lehman Brothers back in 2008 while essentially the CDS more closely resembles risk appetite.