Moody’s, S&P downgrade Credit Suisse, sinking shares

Moody's, S&P downgrade Credit Suisse, sinking shares

At just after 1500 GMT, Credit Suisse shares were down 5.92 per cent at 5.21 Swiss francs, while the Swiss stock exchange’s main SMI index was down 0.25 per cent. ― Reuters pic

Wednesday, 03 Aug 2022 7:51 AM MYT

ZURICH, Aug 3 ― Ratings agencies Moody’s and Standard & Poor’s downgraded scandal-hit Credit Suisse yesterday, given the restructuring Switzerland’s second-biggest bank will have to undertake in a more challenging environment.

Moody’s downgraded the bank’s senior unsecured debt ratings by one notch from Baa1 to Baa2, and from A1 to A2 for its long-term senior unsecured debt, it said in a statement.

“The negative outlook on these ratings has been maintained,” it said, following the “large financial losses” published by Credit Suisse last week.

The ratings agency justified its decision in view of the “more difficult macroeconomic and market environment” the bank will have to deal with in order to stabilise its investment banking business, which is showing signs of “market share erosion”.

“Stabilising the group under the leadership of a new board and senior executive team will require time,” the US agency said.

Last week Credit Suisse said it booked a quarterly net loss of 1.593 billion Swiss francs (RM7.34 billion) in the period from April to June, wider than the loss of 273 million francs in the preceding three months and down from net profit of 253 million francs in the second quarter of 2021.

Like other banks, Credit Suisse has been hurt by falling markets since the invasion of Ukraine.

But its results have also been burdened by heavy provisions for litigation at a time when it is trying to revitalise its investment bank after the scandals that followed its woes since Greensill and Archegos foundered.

In March 2021, Credit Suisse was rocked by the collapse of the British financial firm Greensill, in which some US$10 billion had been committed through four funds, and then by the implosion of the US fund Archegos, which cost it more than US$5 billion.

‘Increasing risks’ to stability

Despite “solid ― although decreasing” capitalisation ratios, Moody’s analysts noted the risk that “further large litigation charges may materialise in the medium term, further delaying a return to profitability”.

Ulrich Koerner, considered a restructuring specialist, took over as Credit Suisse’s chief executive on Monday with the mammoth task of revitalising the bank.

Standard & Poor’s noted that wealth management at the bank had shown signs of weakness.

It left its credit rating unchanged, at BBB for the group and A/A-1 for its Swiss subsidiary, but lowered the outlook from stable to negative.

“We see increasing risks to the stability of the bank’s franchise, uncertainty around the reshuffling of top executives, and a lack of a clear strategy, and we think the group’s risk-adjusted and absolute profitability is likely to remain weak over the medium term,” S&P said.

“The negative outlook reflects the uncertainty regarding Credit Suisse’s strategy and the significant challenges for the new management to transform the bank against strong operating headwinds.”

At just after 1500 GMT, Credit Suisse shares were down 5.92 per cent at 5.21 Swiss francs, while the Swiss stock exchange’s main SMI index was down 0.25 per cent. ― AFP