Credit Suisse Hit With Stock And Credit Downgrades After Earnings Plunge
Shares of Credit Suisse fell on Wednesday after Goldman Sachs downgraded the stock to “sell” following credit rating downgrades from Moody’s and S&P. Shares of the embattled Swiss lender were slightly lower in early afternoon trade in London, having recouped some of their earlier losses, and remain down more than 42% year-to-date as new CEO Ulrich Koerner takes over following the resignation last week of Thomas Gottstein. After reporting a second-quarter net loss of 1.593 billion Swiss francs ($1.66 billion), well below expectations, the bank announced a new strategic review. According to Goldman Sachs, Credit Suisse has underperformed the rest of the sector by 59% since the beginning of 2021 due to company-specific events and industry-wide obstacles to revenue growth.
The Wall Street giant expects this underperformance to continue over the next 12 months as investment bank returns remain suppressed until 2024 and projected a pause in near-term wealth management performance due to outflows and subdued market performance. “On capital, while we foresee no near-term shortfall, organic capital generation is below peers and RWA (risk-weighted assets), inflation plus litigation plus restructuring has the potential to further deplete capital to a relatively low buffer vs regulatory minimums,” Executive Director Chris Hallam and his team said in Tuesday’s note. While Goldman sees a more favorable picture for the European banking sector – higher interest rates will boost revenue and returns forecasts, reinvestment in new technology will enhance returns, and excess capital can be distributed to shareholders – Credit Suisse is currently valued roughly at par with the sector. “Our revised 12-month price target implies 5% upside, but in the context of c.60% upside on average across our Banks coverage, this equates to meaningful underperformance: accordingly, we downgrade the stock to Sell from Neutral,” Goldman said.