Credit Suisse Group AG’s long-term score was downgraded by S&P Global Ratings to simply one level above junk status, underscoring the financial institution’s challenges after it laid out a radical restructuring plan final week.
The Swiss financial institution’s long-term score was cut to BBB- from BBB, with a steady outlook. That’s simply one notch above the BB “speculative grade.” The US scores agency, echoing a number of analyst after the restructuring was introduced on Thursday, mentioned it sees “material execution risks amid a deteriorating and volatile economic and market environment.” It additionally signaled that some particulars round asset gross sales stay “unclear.”
Credit Suisse’s new technique triggered the most important single-day decline on document on the day, with shares tumbling 18%, as buyers weighed the excessive prices of the plan, the modest return predictions and the numerous dilution. The strategic evaluate got here because the financial institution posted a quarterly lack of 4.03 billion Swiss francs, together with a big impairment of deferred tax property associated to the revamp. The restructuring will see the funding financial institution damaged up and can value about 2.9 billion francs ($2.9 billion) via 2024.
“Credit Suisse’s third-quarter earnings pointed to a weakened franchise as its leading wealth management business proved less resilient than previously anticipated, demonstrated by client money outflows and an inflexible cost base,” S&P mentioned in an announcement.
Earlier this yr, S&P had affirmed Credit Suisse’s long-term score at BBB, citing the group’s dedication to sturdy capital, though the outlook remained unfavorable amid uncertainties concerning the revised technique.
The new downgrade means Credit Suisse has the worst credit standing from S&P amongst all main funding banks, making a structural drawback as decrease scores normally translate into greater funding prices. They additionally have a tendency to make lenders much less engaging as counterparties for derivatives transactions.
Several downgrades performed an essential position in Deutsche Bank AG’s lack of market share a number of years in the past, and the agency’s rebounding credit score scores since then have equally been a decisive consider profitable again that market share.
Meanwhile, Moody’s affirmed Credit Suisse’s senior unsecured debt score at Baa2, and downgraded the long-term senior unsecured debt of a serious subsidiary of the Swiss financial institution.
“With these ratings, a downgrade to non-investment grade does not seem imminent”, mentioned Zurcher Kantonalbank analyst Christian Schmidiger.
To shore up its funds, the financial institution is planning to increase 4 billion francs via a rights problem and promoting shares to key buyers together with the Saudi National Bank. Chairman Axel Lehmann has mentioned the capital improve will make the lender “rock solid,” serving to it to perform the overhaul, which is able to see the financial institution spin out an funding banking boutique whereas shrinking the buying and selling operations.
Other key components of the restructuring embody promoting elements of its Securitized Products Group to Apollo Global Management Inc. and Pacific Investment Management Co.. The financial institution additionally desires to cut its workforce by 9 000 to 43 000 by 2025.
Bank executives had needed to keep away from a capital improve given the shares had been buying and selling close to document lows, however noticed outflows of property and deposits from rich shoppers and in the end determined to increase capital to assist shore up its funds. The financial institution can be anticipating a fourth-quarter loss.
Chief Executive Officer Ulrich Koerner mentioned final week that the financial institution will “definitely” be worthwhile from 2024. The financial institution expects to pay solely a “nominal” dividend till then.
As a part of the capital elevating, Saudi National Bank is about to turn out to be one of the Swiss financial institution’s largest shareholders, with a stake of just about 10%. The Qatar Investment Authority, one other high investor, can be set to improve its stake by investing alongside the SNB, the Financial Times reported.
© 2022 Bloomberg
