Credit Suisse hit by stock and credit rating downgrades after revenue slump

Speculation has emerged in recent months that Credit Suisse may also be planning a capital deferral.

Thi Mon Lien Nguyen | Bloomberg | Getty Images

Credit Suisse shares slid on Wednesday after Goldman Sachs downgraded inventory to “sell” following credit rating downgrades from Moody’s and S&P.

Shares of the troubled Swiss lender fell fairly early in the afternoon in London, having recouped some of their previous losses, and remain down more than 42% since the start of the year, so that the new CEO Ulrich Koerner takes the reins after the resignation of Thomas Gottstein week remaining.

The financial institution presented a new strategic overview after reporting a loss of 1.593 billion Swiss francs (1.66 billion dollars) in the second quarter, perfectly consensual, amid insufficient efficiency of the financial institution and higher litigation provisions impacted revenue.

Goldman Sachs noted on Tuesday that Credit Suisse has underperformed the rest of the market by 59% since the start of 2021, due to company-specific events and headwinds to scale earnings growth. Of the industry.

Wall Street’s massive expects this underperformance to continue over the next 365 days as corporate bank yields remain suppressed through 2024, and forecasts a pause in the effectiveness of market control. short-term wealth due to outflows and moderate market efficiency.

“With respect to capital, although we do not expect any shortfall in the near term, organic capital generation is below peers and RWAs (risk-weighted assets), inflation plus litigation plus restructuring have the potential to further deplete capital at a relatively low buffer compared to regulatory minimums,” Chief Executive Chris Hallam and his team mentioned in Tuesday’s warning.

Despite the more favorable image Goldman sees around the European banking house – through which higher interest rates will spice up revenue and return forecasts, reinvestment in the next generation will support returns and additional capital may also be paid out to shareholders – Credit Suisse is more valued or less in tune with the field right now.

“Our revised 12-month price target implies a 5% upside, but in the context of around 60% upside on average across our banking coverage, this equates to a significant underperformance: in Accordingly, we are downgrading the stock to Sell from Neutral,” Goldman said. .

Credit Downgrades

Moody’s downgraded Credit Suisse’s senior unsecured debt and deposit rating by one notch on Monday and maintained an unfavorable outlook on the financial institution’s credit rating trajectory.

“CS’s ratings downgrade reflects the challenges the group faces in successfully completing the previously announced repositioning of its investment bank in a more challenging macroeconomic and market environment, as well as uncertainty over the business and financial implications. of the group’s plans to take further steps to achieve a more stable, capital-light and better-aligned investment banking business,” Moody’s said in its update.

The ranking firm further cited “the crystallization of significant financial losses in the first half of 2022, leading to stress on the bank’s financial profile and potential delays in technology investments, and in business transformation and an expectation of weak and persistent performance in 2022”.

Additionally, Moody’s highlighted evidence of Credit Suisse’s market percentage erosion and “franchise write-down” at its funding financial institution, following the deleveraging of its capital-intensive businesses and the exit from its high brokerage trade.

The ongoing overhaul of its luck and compliance operations is “time-consuming and resource-intensive,” while mob stabilization under new leadership and a modern senior government group will take time, Moody’s said.

“These factors are partially mitigated by the company’s strong – albeit shrinking – capitalization and strong liquidity and funding profiles,” he added.

Credit Suisse Chairman Axel Lehmann told CNBC last week that the new strategic overview would aim to accelerate restructuring efforts.

The preview will intend to significantly reduce the mob’s value base, strengthen its wealth control, Swiss banking and asset control operations, and become the financing financial institution in a banking sector. small-cap and advisory-focused with a better focus. on the stairs.

However, Moody’s cited uncertainty about the financial institution’s “ability to successfully execute” the “to-be-defined” restructuring technique, as well as “deficiencies in governance and instability of senior management,” in a one-notch downgrade for corporate conduct on Credit Suisse. Scorecard.

S&P Global Ratings on Monday revised its outlook on Credit Suisse to unfavorable, citing growing risks to the stability of the financial institution’s franchise, uncertainty over the reshuffling of top savvy executives and a ‘lack of a clear strategy’ , as well as persevering vulnerable people. medium-term profitability.

“The negative outlook reflects the setbacks Credit Suisse may face in revamping its strategy, with new management at the helm, to transform the bank in an increasingly challenging operating environment,” S&P said.