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

Agence France-Presse

Posted at Aug 03 2022 08:38 AM

A view of the logo of Swiss bank Credit Suisse in Zurich, Switzerland, 21 February 2022. A major data leak linked to thousands of accounts from one of the world's biggest private banks, Credit Suisse, allegedly exposed the hidden wealth of clients involved in drug trafficking, money laundering, corruption and other serious crimes. Credit Suisse released a statement on 20 February, where it 'strongly rejects the allegations and insinuations about the bank's purported business practices.' EPA-EFE/ENNIO LEANZA
A view of the logo of Swiss bank Credit Suisse in Zurich, Switzerland, 21 February 2022. A major data leak linked to thousands of accounts from one of the world's biggest private banks, Credit Suisse, allegedly exposed the hidden wealth of clients involved in drug trafficking, money laundering, corruption and other serious crimes. Credit Suisse released a statement on 20 February, where it 'strongly rejects the allegations and insinuations about the bank's purported business practices.' EPA-EFE/ENNIO LEANZA

ZURICH, Switzerland - Ratings agencies Moody's and Standard & Poor's downgraded scandal-hit Credit Suisse, 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 stabilize its investment banking business, which is showing signs of "market share erosion".

"Stabilizing 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 ($1.65 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 revitalize 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 $10 billion had been committed through four funds, and then by the implosion of the US fund Archegos, which cost it more than $5 billion.

'Increasing risks' to stability 

Despite "solid -- although decreasing" capitalization 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 percent percent at 5.21 Swiss francs, while the Swiss stock exchange's main SMI index was down 0.25 percent.

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