Credit Suisse is at a crossroads as stock prices fall again

ZURICH — Shares in Credit Suisse fell again on Friday despite support from Switzerland’s central bank, as investors worry about which route the embattled lender will take to try to restore confidence.

Even more drastic restructuring, the closure of the investment banking division or even a takeover by a competitor have been considered by analysts studying Switzerland’s second-largest bank, one of 30 banks of global importance to the international banking system.

Amid contagion fears following the collapse of two US banks, Credit Suisse’s largest shareholder said on Wednesday he would “absolutely not” increase his stake in the bank for regulatory reasons.

This triggered panic on the markets and the bank’s shares fell by more than 30 percent over the course of the day to a new record low of CHF 1.55 per share.

The Swiss National Bank came to the rescue to calm markets, and Credit Suisse announced it would raise 50 billion francs ($54 billion) from the SNB to bolster the group.

After gaining some ground on Thursday, shares of Credit Suisse closed up eight percent on Friday at 1.86 Swiss francs a share as the Zurich-based lender struggled to regain investor confidence.

– Bankruptcy highly unlikely –

The central bank’s lifeline raises questions about whether an orderly bankruptcy could happen, with regulators taking over Credit Suisse and dealing with its dismantling.

It’s a “fantastic” hypothesis, said David Benamou, chief investment officer at Paris-based Axiom Alternative Investments.

He emphasized that Credit Suisse is “one of the best capitalized banks in Europe”.

Credit Suisse’s CET1 ratio, which compares a bank’s capital to its risk-weighted assets, was 14.1 percent at the end of 2022 – slightly less than HSBC but more than that of BNP Paribas, which is among the largest banks in Europe heard.

Thanks to the intervention of the SNB, it now has a huge amount of liquidity.

– merger with UBS –

Analysts at financial services giant JPMorgan, who insisted “the status quo is no longer an option”, held the scenario of a takeover by another bank, with UBS, Switzerland’s largest, “the most likely”.

Given the weight such a merger would bring to the two banks, they thought that Credit Suisse’s Swiss domestic branch, which includes retail banking and small and medium-sized business lending, could be listed or spun off.

Both UBS and Credit Suisse declined to comment when contacted by AFP.

With the collapse of Credit Suisse shares – shares were worth 12.78 Swiss francs in February 2021 – theirs market capitalization melted, potentially making them easy prey.

The idea of ​​a merger of the largest Swiss banks comes up regularly, but is generally dismissed due to competition issues and risks to the stability of the Swiss financial system given the size of the bank that such a merger would create.

“The question arises because there are many interested parties,” says Benamou, while Credit Suisse’s market capitalization “oscillates between six and eight billion francs from one day to the next.”

“However, even if forced to do so by the authorities, Credit Suisse management would only choose (this option) if there was no other solution,” he said.

The bank is beginning to implement its restructuring plan unveiled in October, while UBS has spent several years addressing its own problems.

Benamou doubted the larger bank would want to embark on another overhaul now that they are beginning to reap the rewards of order in their own home.

– A more radical overhaul –

After the US bank collapse, Credit Suisse credit default swaps shot up.

These CDS derivatives, which allow investors to hedge against the risk of a debt not being repaid, are a barometer of market concerns.

Faced with these tensions, analysts at US financial services firm Morningstar saw the bank forced to turn to the markets, despite the capital raise completed in November, with the alternative being to wind up its activities.

With the help of the SNB, Credit Suisse has “buyed precious time” for a more radical transformation, Morningstar analyst Johann Scholtz said.

He thinks the current restructuring is “too complex” and “doesn’t go far enough” to reassure financiers, customers and shareholders.

“The key to restoring confidence and ensuring its viability is for Credit Suisse to close out its loss-making securities trading business in an orderly manner,” he said.

JPMorgan analysts proposed a radical option, which would be to shut down its investment banking activities entirely.