The risk of civil unrest has spiked across the globe as developed nations and emerging markets alike grapple with spiraling inflation and upheaval exacerbated by Russia’s invasion of Ukraine, according to a report.
Of 198 countries tracked in the Civil Unrest Index, 101 showed mounting risk in the third quarter of 2022, according to research collected by intelligence firm Verisk Maplecroft. That’s the biggest increase since the ranking was developed in 2016, it showed.
The potential for unrest is rising across Europe, which is bracing for a long winter of energy disruption because of the war in Ukraine — as well as the developing world, where price spikes on basic staples have triggered concern of a global food crisis. The threat is set to grow over the coming months, researchers say.
Particularly in developed nations, civil unrest could take the form of demonstrations and labor strikes with the potential to tear at nations’ social fabric.
“These are significant events in terms of disrupting every day life,” Jimena Blanco, chief analyst for Verisk Maplecroft, said in an interview. In emerging markets, worst-case scenarios may involve “rioting, looting, even attempts to overthrow the government,” she said.
Global inflation is likely to linger for months, with no prospect of returning to levels before the twin shocks of the Covid-19 pandemic and the war in Ukraine — even if consumer-price inflation is set to ease somewhat in the second half.
As for civil unrest, while Verisk researchers predicted an increase in risk in 2020, the jump shown by research has been “far worse” than initially forecast, the report said. Inflation levels mean that almost half of countries on the index are categorized as “high” or “extreme” risk levels.
Read More: Breaking ‘Inflation Fever’ Is No Relief for Central Bank Angst
The mounting potential for unrest is likely only to be addressed with a “significant reduction” in food and energy prices, the report showed. But weather is also a factor, particularly in Europe, where a cold heating season would exacerbate the continent’s energy crunch.
The bank’s emerging markets trading platform as well as its foreign exchange products, on the other hand, have more obvious links to Credit Suisse’s rich clients. That’s because a large portion of the most active wealthy customers are in Asia Pacific, Latin America and the Middle East.
Equities Trading
Equities trading generally binds less capital than fixed income, and wealthy clients like to trade stocks, making it less of a target for cuts, according to Deutsche Bank. But the business also requires investments in technology, especially where it caters to institutional clients.
One relatively straightforward way for Credit Suisse to reduce costs would be a more decisive retreat from equities trading for institutional clients, while keeping a limited team that could cater to the wealthy who trade stocks.
The unit has been shrinking since it was devastated early last year by the collapse of Archegos Capital Management, prompting the Swiss bank to exit the business that serves hedge funds. Equities trading generated only 834 million Swiss francs revenue in the first half of the year, down from 1.28 billion Swiss francs two years earlier.
Deal-Making
Credit Suisse is likely to hang on to its bankers who advise companies on mergers and acquisitions after saying last month that it would “transform the investment bank into a capital-light, advisory-led banking business.”
Advisory was the only division within the investment bank unit to increase revenue in the second quarter. The Swiss bank generates more money in this area than several European competitors and benefits from its ability to tap clients in wealth management for deals.
Deutsche Bank analysts, however, have questioned whether it makes sense for Credit Suisse to rebuild that franchise in the U.S., where it has had high staff turnover, and where it’s lacking wealth management clients.
Capital Markets
Credit Suisse has been pummeled in the business of arranging equity and debt financing for companies, with revenue in that business almost wiped out in the second quarter. That may not change much in the near future as higher interest rates force investors to rethink the risk of handing over their money to companies.
Previously the bank made lots of profit from Chinese companies listing in the US, and it was also a go-to adviser for special-purpose acquisition companies (SPACs). That craze has ended, meaning executives will probably take a look at the highly paid specialists behind such deals.
Similarly, higher rates have hurt the business of arranging loans for highly indebted companies. Credit Suisse has traditionally been one of the top banks in leveraged finance, yet after years of booming fees, it and other global banks took a hit in the second quarter. The bank has already begun cutting exposure to non-investment grade debt and shifting its underwriting business towards higher-rated corporates.
Credit Suisse still has broad industry coverage and could take a page out of competitor UBS Group AG’s book. The Zurich rival some time ago merged its equity capital markets and debt capital markets teams and formed four “supersectors” to cover industries where it had the best expertise.
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