Credit Suisse has lost a lot of confidence in the last two years due to failures, huge losses and the stock market crash. In the new year, the big bank now needs to take decisive steps in its restructuring. According to banking expert Teodoro Cocca (51), the transformation will be “something imminent.”
The urgency of the situation was recognized by the big bank: In October, CS management announced a “strategy update” with extensive cost savings and a clear resizing of the loss-making investment bank unit. However, distrust of the stock market remains high.
Is the new strategy too late?
Bank analysts continue to lack clarity on many key points in the new strategy. The CS share, which fell almost 70 percent in 2022, was below 3 francs at the beginning of the year and will likely worry about staying in the Swiss Market Index in the future.
University of Linz Asset Management Professor Teodoro Cocca told the AWP news agency Credit Suisse’s plan was probably correct, but that it came “too late” and in a time of great uncertainty around the bank.
In the past, CS apparently intended to draw the right lessons from the events by making minor adjustments. “Had the same plan been announced much earlier, it would have been just as accurate and you could have acted from a much stronger position.”
After all, rising interest rates and “probably rising stock markets” could help stabilize earnings power, according to the Swiss banking expert. With this headwind from the markets, it seems realistic to apply the strategy “by luck”. “But it will be something close.”
6 percent of assets deducted from CS
However, Cocca stressed that further cash outflows in the key asset management business, as well as greater losses, would jeopardize the implementation of the strategy. Between early October and mid-November, CS clients withdrew about 6 percent of assets under management after rumors of a financial crisis at the bank. CS President Axel Lehmann later reassured several times that the situation has since stabilized.
“If additional substantial measures become necessary, it will mean that CS as we know it today no longer exists – because either the ownership structure will change or a broader split will be necessary,” Cocca warns.
Scenarios of a possible split of the big bank are not new. Just last year, analysts had similar thoughts several times: After the investment bank downsizing, the wealth management business could be taken over and at the same time the profitable Swiss CS business could be listed on the stock market.
Confidence still high in the markets
Persistently high prices to hedge against default on Credit Suisse bonds, known as credit default swaps (CDS), also point to ongoing insecurity in the markets. These are still around 380 points, compared to about 76 points for rival UBS.
According to banking expert Cocca, the probability of CS bonds defaulting over the next two years was around 12 percent at year-end from derivatives prices. However, this is a snapshot: “If CS can deliver more positive news again soon, it will cause a calming down around the bank. At least in the short term.” (SDA/shq)