S&P cuts Credit Suisse to one level above junk status on risks

CREDIT Suisse Group’s long-term rating was downgraded by S&P Global Ratings to just one level above junk status, underscoring the bank’s challenges after it laid out a radical restructuring plan last week.

The Swiss bank’s rating was cut to BBB- from BBB, with a stable outlook. The rating is just one notch above the BB “speculative grade”. The US ratings firm, echoing several analysts after the restructuring was announced on Thursday (Oct 27), said it sees “material execution risks amid a deteriorating and volatile economic and market environment”. It also signalled that some details around asset sales remain “unclear”. 

Credit Suisse’s new strategy triggered the biggest single-day decline on record on the day, with shares tumbling 18 per cent, as investors weighed the high costs of the plan, the modest return predictions and the significant dilution. The strategic review came as the bank posted a quarterly loss of 4.03 billion Swiss francs (S$5.07 billion), including a large impairment of deferred tax assets related to the revamp. The restructuring will break up the investment bank, and cost about 2.9 billion francs through 2024. 

Earlier this year, S&P had affirmed Credit Suisse’s long-term rating at BBB, citing the group’s commitment to strong capital, although the outlook remained negative amid uncertainties about the revised strategy. 

Meanwhile, Moody’s affirmed the bank’s senior unsecured debt rating at Baa2, and downgraded the long-term senior unsecured debt of one of its major subsidiaries.

To shore up its finances, the bank is planning to raise 4 billion francs through a rights issue and selling of shares to key investors including the Saudi National Bank. Chairman Axel Lehmann has said the capital increase will make the lender “rock solid”, helping it to carry out the overhaul, under which the bank will spin out an investment banking boutique while shrinking its trading operations. 

SEE ALSO

Credit Suisse is not for sale, chairman says

Credit Suisse plans to push ahead with China expansion after overhaul

DECODING ASIA

Navigate Asia in
a new global order

Get the insights delivered to your inbox.

Other key elements of the restructuring include selling parts of its Securitised Products Group to Apollo Global Management and Pacific Investment Management Co. The bank also wants to cut its workforce by 9,000 to 43,000 by 2025.

Bank executives had wanted to avoid a capital increase given the shares were trading near record lows, but saw outflows of assets and deposits from wealthy clients and ultimately decided to boost capital to help shore up its finances. The bank is also expecting a fourth-quarter loss.

Chief executive officer Ulrich Koerner said last week that the bank will “definitely” be profitable from 2024. It expects to pay only a “nominal” dividend until then. BLOOMBERG