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Credit Suisse profit warning makes equity raise a tough sell: Can the Swiss bank survive?

By Jenal Mehta

13:12, 23 November 2022

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In this article:
BNP
BNP Paribas
52.14 USD
CBK
Commerzbank
7.795 USD
CS
Credit Suisse
3.38 USD
-0.03 -0.900%
HSBA
HSBC - GBP
4.993 USD
RBSl
NatWest Group PLC
2.580 USD

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Credit Suisse office building
Clients leave Credit Suisse, credit ratings lower, will the bank survive? Photo : Getty Images

Credit Suisse (CS) announced that it forecasts a loss in the upcoming quarter due to mass exodus of clients, as it tries to force through its restructuring plans.

In a statement released on 23 November the Swiss bank said it “began experiencing deposit and net asset outflows in the first two weeks of October 2022 at levels that substantially exceeded the rates incurred in the third quarter of 2022”.

This has reduced the bank's liquidity. The bank's shares lowered 5% following the news, and have been trading almost 50% lower during the past six months.

Other European rivals such as HCBC (HSBA), NatWest (RBSI), BNP Paribas (BNP) and CommerzBank (CBK) have not seen such a decline in the same time period.

A few weeks ago Credit Suisse increased its required capital by CHF4bn as part of its continued restructuring programme, which was approved by the board as of 23 November 2022. 

Credit Suisse (CS) Price Chart

In the statement, Credit Suisse said that the main reason behind the loss forecast is “the challenging economic and market environment has had an adverse impact on client activity across its divisions."

It added: "In particular, the Investment Bank has been impacted by the substantial industry-wide slowdown in capital markets and reduced activity in the Sales & Trading businesses, exacerbating normal seasonal declines, and the Group’s relative underperformance.”

In particular it is the wealth management and Swiss Bank division in which activity remains “subdued”.

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The bank also noted “the impact of social media speculation and unsubstantiated media reports about our business and its performance”.

In recent months, online market watchers have speculated that the bank's demise is imminent, dubbing it “Debit Suisse”.

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CommerzBank (CBK) Price Chart

Credit Suisse has said it is partly trying to offset these losses by improving its balance sheet and reducing risk. It has sold a significant part of Credit Suisse Securitized products and parts of its Financing business to Apollo Global Management. It has also disposed of its shareholding in Allfunds Group PLC, which recorded a CHF75 million loss.

The bank said it continues to hunt for capital both publicly and privately, and so far has the backing of a few investors including the Saudi National Bank, which did not go down well with the Swiss bank’s shareholders.

The loss of funds stemming from exiting clientele has left the bank under severe liquidity pressure “these outflows have led the bank to partially utilise liquidity buffers at the Group and legal entity level, and while the bank has fallen below certain legal entity-level regulatory requirements the core requirements of the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) at the Group level have been maintained at all times.”

The recent chaos at Credit Suisse has led to a number of credit rating downgrades. S&P lowered the group’s rating to a BBB-, which is just one grade above junk bonds. Fitch rating also lowered it to a BBB, stating the reason behind this downgrade as there are “challenges for the bank to stabilise its performance and to create a business model that will generate adequate profitability”

As of now, Credit Suisse remains persistent in its attempt to restructure, with an aim to create “a new Credit Suisse”.

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