Credit Suisse Tumbles On Fears Of Massive XIV Loss

In addition to being the creator of the now infamous XIV ETN  – which was reportedly the most popular way of shorting volatility for retail investors, all of whom now face almost certainly total losses – Credit Suisse also happened to be its biggest holder. 

Which, now that the ETN appears fated for termination, is suddenly a very big problem for Credit Suisse since according to the latest public filings, the Swiss bank owned 4.79 million units, or over $550 million, worth of XIV at yesterday’s close of $115.55, and roughly $480 million less at today’s after hours closing tick of $15.43. Of course, if the ETN is redeemed – and with its NAV at $4.22 according to the VelocityShare website – the loss could be total.

And while the question remains who exactly is eating the losses at Credit Suisse – the bank or its clients – the market is not taking chances, and Credit Suisse ADRs have tumbled in Asian trading…

… because if Credit Suisse is on the hook, it would mean two quarters of profits have just been wiped out: recall that CS reported roughly $250MM and $300 million in profits in the last two quarters, which would mean that the XIV loss was roughly equivalent to half a year’s worth or profits, an outcome which the regulators will be very interested in, not to mention shareholders, clients, and their lawyers.