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Credit Suisse Outlook Cut by S&P Global on Management Shuffle, Run of Losses

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·3 min read
Credit Suisse Outlook Cut by S&P Global on Management Shuffle, Run of Losses
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(Bloomberg) -- Credit Suisse Group AG shares slumped after the bank’s credit outlook was cut to negative by S&P Global Ratings and its senior debt was downgraded by Moody’s Investors Services, signaling that management changes announced last week are failing to shore up investor confidence.

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S&P revised the outlook to negative from stable, while Moody’s downgraded the lender’s senior unsecured debt to Baa2 from Baa1. Later Tuesday, analysts at Swiss asset manager Vontobel Holding AG lowered its price target for the bank’s shares, citing “stunningly weak” performance at the key wealth management division.

“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 Monday in a statement.

Credit Suisse posted a larger-than-expected 1.59 billion-franc ($1.65 billion) loss for the second quarter, underscoring the Swiss firm’s challenges in exiting its worst slump since the financial crisis. The lender announced that Ulrich Koerner, 59, would replace Thomas Gottstein as CEO in an effort to steer the bank back to profitability.

Credit Suisse shares fell as much as 7.2% on Tuesday, trading at 5.16 francs as of 12:26 p.m. in Zurich.

“With sticky near-term costs and revenues under increasing pressure, it is hard to be positive on Credit Suisse,” Eoin Mullany, an analyst at Berenberg wrote in a note.

S&P said it affirmed its A/A-1 long-and short-term issuer credit grade on Credit Suisse AG, the principal operating bank of the Credit Suisse group, and the group’s other core subsidiaries. It also affirmed its BBB long-term issuer credit rating on Credit Suisse Group AG.

The bank has been plagued by losses tied to the blow-up of Archegos Capital Management and Greensill Capital. Now with inflation fears and the war in Ukraine spurring more turbulence, its losses have totaled almost 4 billion Swiss francs in the past three quarters.

The turmoil has helped push up the cost of insuring the bank’s bonds against default, but the run up has been far more than other peers. The development raises the risk of a downward spiral of client outflows and loss of market share, leading to declining revenues as well further ratings downgrades and rising funding costs.

Credit Suisse has made an effort to show the markets that its capital and funding are not at risk. Chairman Axel Lehmann said last week that the bank was not planning to increase its capital, despite the loss in the second quarter. The bank recorded a CET1 ratio of 13.5 % in the three months through June, and Lehmann said the bank intends to keep the ratio between 13 and 14% until the end of 2022.

(Adds Vontobel price target downgrade)

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