Credit Suisse Crash
How bots on Reddit helped to crash Credit Suisse - now even healthy banks are at risk
At Valent, we are able to track online manipulation methodologies as they move from war zones to the corporate world and financial markets. For our latest investigation, we looked at how manipulation on Reddit was used to decimate global banking giant Credit Suisse before its collapse earlier this year. Our findings have implications for banks, regulators, policy makers, and anyone else with an interest in maintaining the health of global systems by making sure the information that underpins them can be trusted - Amil
The first part of the report is posted below, if you wish to continue reading, please follow the link at the end
Banking giant Credit Suisse was targeted by a sophisticated manipulation attack on Reddit that caused an exacerbated drop in the bank’s share price and precipitated its eventual collapse, according to new research from tech startup Valent Projects.
Not only do the findings suggest that healthy banks are at as much a risk as troubled ones - they also show that the manipulation of trading subreddits at the focal point of the 2021 GameStop short squeeze are going to inevitably become a bigger threat to the financial stability of the banking sector.
The techniques used to target Credit Suisse have the potential to become even more dangerous with the evolution and adoption of AI, allowing otherwise healthy banks to be targeted by short sellers.
“Credit Suisse was the victim of short sellers who were helped by a sophisticated social media campaign that exploited the narratives swirling around about the bank,” said Valent’s CEO, Amil Khan. “Methodologies are constantly evolving and AI will make narrative tracking and content distribution a lot easier. Soon every bank will be a target”, he added.
Our findings show that short-seller activity utilising social media is increasing in sophistication, using techniques that are harder to track and widening their potential targets from stressed banks to any that can be presented in a negative light on social media. Officials in the United States are already investigating short-seller activity after three US regional lenders failed, and their focus is being drawn towards pressure on healthy banks.
The operation targeting Credit Suisse tracked authentic posts about the bank and identified narratives that provoked the most hostility from Reddit users. Those narratives were then tested through the use of different examples, explanations and arguments. We call this process “narrative testing”.
Narrative testing is a technique we see commonly used in conflict zones. Online manipulation strategies are borderless and fast evolving, incorporating new technologies such as AI-assisted psychological profiling of audiences and generative AI. There is an established pattern whereby conflict zones are used as testing grounds for strategies and then applied in wealthy states for political and/or financial gain. Valent’s research team investigates and tracks the evolution of such strategies to inform the tools being developed by our technical team.
Following a period of narrative testing, the short sellers then opened their positions, and finally the optimised narratives were released to coincide with bad news for the bank (we call a surge in such weaponised narratives a “kill spike”). The final result was a 20% drop in Credit Suisse’s stock over two days. The bank never recovered and was merged with rival UBS in March 2023.
The bad news in this case was the publication of Credit Suisse Q3 2022 results which showed the bank had made a loss of 4 billion Swiss francs (CHF) while analysts had forecasted a 413 million CHF loss. The 20% drop in its stock price far outstripped reactions to previous missed earnings forecasts. The bank’s shares traded flat after the previous Q2 results, where losses were roughly 5x consensus forecasts. Looking at the bank’s end of 2021 results, when it also faced a sizable unexpected loss, we can see that its shares fell only 3.67% after posting a 2021 loss of 1.57 billion CHF when the forecast was a loss of only 377.95 million CHF.
Subs and Scandals
Utilising Valent’s AI - Ariadne, the research team of data engineers, financial journalists and digital investigators, examined posting patterns on Reddit, a social media platform based around forums known as “subs”. Reddit emerged on traders’ radars in January 2021, when millions of retail investors mobilised on the site to execute a short squeeze on US game retailer GameStop. Their actions caused major losses for several established hedge funds….
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