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Credit Suisse capital raise: Is CS stock investable after shareholder dilution of Swiss lender’s turnaround plan?

By Manaswita Ghosh Dutta

Edited by Georgy Istigechev

13:55, 16 November 2022

Credit Suisse sign on branch in Basel, Switzerland
Credit Suisse's stock is down close to 55% year-to-date, and a turnaround is on the cards – Photo: Fabrice Coffrini / AFP via Getty Images

The Credit Suisse stock price (CS) has lost over half its value year-to-date (YTD) – the Switzerland-based financial services firm’s stock slid by close to 55% from the beginning of the year to 16 November 2022.

This gradual decline can be attributed to a string of scandals and massive losses, which were a result of the bank’s extensive exposure to the collapse of New York-based asset management firm Archegos Capital and London-based financial services company Greensill Capital.

Credit Suisse (CS) Live Stock Price Chart

However, the firm’s new restructuring plan, which is expected to allow the company to shift its focus on wealth management rather than its current niche of investment banking despite its plans to cut jobs, has rekindled hopes for investors.

What lies ahead for the CS stock price? Read on to learn more about the Credit Suisse capital raise and whether Credit Suisse will survive the ongoing turbulence.

What is Credit Suisse?

Credit Suisse is a financial services company headquartered in Zurich, Switzerland. It was founded in 1856 as Schweizerische Kreditanstalt by Swiss businessman and politician Alfred Escher.

The company offers services in all areas of trade finance, which range from short-term documentary credits to long-term export finance. Credit Suisse is also a primary dealer and forex counterparty of the Federal Reserve Bank of New York.

American depositary receipts (ADRs) of the company are traded on the New York Stock Exchange (NYSE) under the ticker symbol ‘CS’. One ADR represents one common share. The stock is also traded on Switzerland's Swiss Market Index (SMI) under the ticker code CSGN.

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Credit Suisse stock analysis: Historical view

Over the past five years, Credit Suisse's stock price lost over 72% of its value, as of 16 November 2022.

The NYSE Composite, where the Credit Suisse stock is listed, has gained nearly 24% over the same period.

Credit Suisse (CS) 5-year stock price chartPast performance is not a reliable indicator of future results / Source: TradingView, NYSE

On a year-to-date basis, the losses incurred by Credit Suisse stock were also wider than those incurred by the NYSE Composite. Credit Suisse stock has fallen by 55%, while the NYSE Composite has lost 12%.

The Swiss bank ADR’s 52-week high was $10.56, while the 52-week low for Credit Suisse stock came in at $3.70.

The Credit Suisse stock price surged to an all-time high of $56.34 on 25 April, 2007.

Credit Suisse Q3 losses due to volatility, widened credit spreads

Credit Suisse reported a net loss of 4.034bn CHF ($4.29bn) on a net revenue of 3.804bn CHF ($4.03 bn) in the July-September quarter, according to a release in late October.

The poor performance was linked to the current economic and market environment, – the geopolitical situation and monetary tightening by major central banks in response to rising inflation have resulted in continued heightened market volatility, weak customer flows and ongoing client deleveraging.

Credit Suisse’s third-quarter results were heavily affected by higher volatility, widened credit spreads and muted primary issuance, according to the earnings release.

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Ulrich Körner, CEO of Credit Suisse Group AG, spoke about the company’s restructuring plans in a third-quarter earnings release:

“The third quarter, and more broadly 2022 so far, have been significantly impacted by the continued challenging market and macroeconomic conditions, leading to a weaker performance for our Investment Bank in particular. Our recent Group level performance has been disappointing for our stakeholders. From today, we are taking a series of decisive actions to re-focus Credit Suisse around the needs of our clients and stakeholders.
“Our new, integrated model will be focused on Wealth Management, the Swiss Bank, as well as Asset Management, and we will radically restructure the Investment Bank, strengthen capital, and accelerate our cost transformation. We believe these actions will lead Credit Suisse to a more stable performance and generate lasting value for our shareholders.”

Credit Suisse’s $4.01 billion capital raise for restructuring

On 31 October, Credit Suisse announced plans to raise 4 billion CHF ($4.01bn) from investors to support the embattled bank through restructuring, which is expected to move its focus from investment banking to wealth management.

The bank is currently offering investors a chance to buy new shares in the firm. The capital raise comes as Credit Suisse incurred a $5.5bn loss from Archegos and froze $10bn worth of supply chain finance funds related to Greensill.

What is a capital raise? A capital raise is when a firm asks existing and potential investors for additional capital, which can be received by the company in the form of debt or equity. Capital raised via debt is accepted in the form of loans or issuances of corporate bonds. Equity capital is taken in the form of cash, traded for company ownership, mostly via stocks.

According to JP Morgan analysts, Reuters reported, the Credit Suisse capital raise may lead to 27% total dilution in the economic earnings of its shares.

Reuters said in an October report that the bank plans to let go 2,700 employees – 5% of its workforce – by the end of 2022, and lower its workforce by nearly 9,000 to 43,000 by the end of 2025 as part of its restructuring plan.

Fitch Group’s financial research firm CreditSights had an optimistic view of the Swiss bank’s restructuring plan: 

“The restructuring should provide more stability in the longer term, although performance is likely to remain weak in the short term - we are maintaining our Underperform (senior) and Fair (AT1) recommendations for now.”

CreditSights said that it “maintained these recommendations despite the significant spread widening over the past few weeks, in the expectation that Credit Suisse’s restructuring plan would address the speculation about its financial position.”

The rating of the Credit Suisse stock is a ‘hold’ based on 17 analyst ratings at MarketBeat. Two analysts rated the stock as a "buy", while nine rated it a "hold" and the remaining six rated it as a "sell".

JPMorgan Chase (JPM), Societe Generale (GLE), Barclays (BARC), and Deutsche Bank (DBK) downgraded the Credit Suisse share price while the Royal Bank of Canada (RY) upgraded the price of the Credit Suisse stock, according to MarketBeat.

Looking ahead, Credit Suisse expects to incur restructuring charges, software, and real estate impairments of nearly 250m CHF in the October-December quarter as part of the cost of the strategic transformation. Combined with the adverse revenue impact from the exit from its non-core businesses and exposures, Credit Suisse expects a net loss for the company in the fourth quarter.

Note that analysts can be wrong. Their forecasts or recommendations shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading, looking at the latest news, a wide range of analyst commentary, technical and fundamental analysis on the stock.

Keep in mind that past performance does not guarantee future returns. And never trade money that you cannot afford to lose.

FAQs

What is Credit Suisse known for?

Credit Suisse is a financial services company headquartered in Zurich, Switzerland. The company offers services in all areas of trade finance, which range from short-term documentary credits to long-term export finance.

Why is Credit Suisse stock so low?

Shares of the second-largest Swiss bank have declined in 2022 amid investors’ concerns about whether the firm may be able to raise money by selling new shares to put to work its new restructuring plan.

Is Credit Suisse a good stock to buy?

The rating of the Credit Suisse stock is a “hold” based on 17 analyst ratings at MarketBeat as of 16 November 2022. Two analysts rated the stock as a “buy”, while nine rated it a “hold” and the remaining six rated it as a “sell”.

Remember that analysts can and do get their forecasts wrong. Always do your own research before trading or investing. And never invest more than you can afford to lose.

Markets in this article

BARC
Barclays
2.2850 USD
-0.0005 -0.020%
DBK
Deutsche Bank
15.000 USD
-0.275 -1.810%
JPM
JPMorgan Chase & Co (Extended Hours)
209.98 USD
-0.17 -0.080%
RY
Royal Bank Of Canada
111.22 USD
-0.93 -0.830%
GLE
Societe Generale
23.735 USD
-0.25 -1.050%

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