Credit Suisse to remain 'under pressure' but analysts wary of Lehman comparison

Credit Suisse shares concisely sank to an all-time debased connected Monday portion recognition default swaps deed a grounds high, arsenic the market's skittishness astir the Swiss bank's aboriginal became abundantly clear.

Shares continued to retrieve connected Tuesday from the erstwhile session's debased of 3.60 Swiss francs ($3.64), but were inactive down much than 53% connected the year.

The embattled lender is embarking connected a monolithic strategical review nether a caller CEO pursuing a drawstring of scandals and risk absorption failures, and volition springiness a advancement update alongside its quarterly net connected Oct. 27.

Credit Suisse recognition default swaps — derivatives that service arsenic a benignant of security declaration against a institution defaulting connected its indebtedness — soared to a dispersed of much than 300 ground points Monday, good supra that of the remainder of the sector.

Credit Suisse CEO Ulrich Koerner past week sought to reassure unit of the Swiss bank's "strong superior basal and liquidity position" amid marketplace concerns and a emergence successful credit-default swaps.

In an interior memo sent to unit past week, Koerner promised them regular updates during this "challenging period" and said Credit Suisse was "well connected track" with its strategical review.

"I cognize it's not casual to stay focused amid the galore stories you work successful the media — successful particular, fixed the galore factually inaccurate statements being made. That said, I spot that you are not confusing our day-to-day banal terms show with the beardown superior basal and liquidity presumption of the bank," Koerner said.

Based connected Credit Suisse's weaker instrumentality connected equity illustration compared to its European concern banking peers, U.S. concern probe institution CFRA connected Monday lowered its terms people for the banal to 3.50 Swiss francs ($3.54) per share, down from 4.50 francs.

This reflects a price-to-book ratio of 0.2x versus a European concern slope mean of 0.44x, CFRA Equity Analyst Firdaus Ibrahim said successful a enactment Monday. CFRA besides lowered its earnings-per-share forecasts to -0.30 francs from -0.20 francs for 2022, and to 0.60 francs from 0.65 francs for 2023.

A price-to-book ratio measures the marketplace worth of a company's banal against its publication worth of equity, portion earnings-per-share divides a company's nett by the outstanding shares of its communal stock.

"The galore options rumored to beryllium considered by CS, including exit of U.S. concern banking, instauration of a 'bad bank' to clasp risky assets, and superior raise, bespeak a immense overhaul is needed to crook astir the bank, successful our view," Ibrahim said.

"We judge that the antagonistic sentiment surrounding the banal volition not abate immoderate clip soon and judge its stock terms volition proceed to beryllium nether pressure. A convincing restructuring program volition help, but we stay skeptical, fixed its mediocre way grounds of delivering connected past restructuring plans."

Despite the wide marketplace negativity toward its stock, Credit Suisse is lone the eighth-most shorted European bank, with 2.42% of its floated shares utilized to stake against it arsenic of Monday, according to information analytics steadfast S3 Partners.

'Still a batch of value' successful Credit Suisse

All 3 large recognition ratings agencies — Moody's, S&P and Fitch — present person a antagonistic outlook connected Credit Suisse, and Johann Scholtz, equity expert astatine DBRS Morningstar, told CNBC Tuesday that this was apt driving the widening of CDS spreads.

He noted that Credit Suisse is simply a "very good capitalized bank" and that capitalization is "at worst successful enactment with peers," but the cardinal information would beryllium a concern akin to that experienced by well-capitalized banks during the 2008 fiscal crisis, wherever customers were reluctant to woody with fiscal institutions for fearfulness of a domino effect and counterparty risk.

"Banks being highly leveraged entities are exposed overmuch much to sentiment of clients and astir importantly to providers of funding, and that's the situation for Credit Suisse to thread that delicate way betwixt addressing the interests of providers of, especially, wholesale funding, and past besides the interests of equity investors," Scholtz said.

"I deliberation a batch of investors volition marque the constituent astir wherefore does the slope request to rise superior if solvency is not a concern? But it's truly to code the antagonistic sentiment and precise overmuch the contented ... successful presumption of the cognition of counterparties."

Scholtz dismissed the thought that a "Lehman moment" could beryllium connected the horizon for Credit Suisse, pointing to the information that markets knew that determination were "serious issues" with the Lehman Brothers equilibrium expanse successful the runup to the 2008 crisis, and that "serious writedowns" were needed.

"Whilst determination is simply a imaginable for caller writedowns being announced by Credit Suisse astatine the extremity of the period erstwhile they're coming up with results, determination is thing publically disposable astatine the infinitesimal that indicates that those writedowns volition beryllium capable to really origin solvency issues for Credit Suisse," Scholtz said.

"The different happening that is overmuch antithetic compared to the Great Financial Crisis – and that's not conscionable the lawsuit lone for Credit Suisse – is that not lone are their equity superior levels overmuch higher, you've besides seen a implicit overhaul of the operation of banking capitalization, thing similar buy-inable indebtedness that's travel along, besides improves the outlook for the solvency of banks."

The bank's stock terms is down much than 73% implicit the past 5 years, and specified a melodramatic plunge has people led to marketplace speculation astir consolidation, portion immoderate of the marketplace chatter up of the Oct. 27 announcement has focused connected a imaginable hiving disconnected of the troublesome concern banking concern and superior markets operation.

However, helium contended that determination is "still a batch of value" successful Credit Suisse successful presumption of the sum of its parts.

"Its wealthiness absorption concern is inactive a decent business, and if you look astatine the benignant of multiples that its peers – particularly standalone wealthiness absorption peers – commercialized at, past you tin marque a precise beardown lawsuit for immoderate heavy worth successful the name," helium added.

Scholtz dismissed the conception of consolidation of Credit Suisse with home rival UBS connected the ground that the Swiss regulator would beryllium improbable to greenlight it, and besides suggested that a merchantability of the concern slope would beryllium hard to propulsion off.

"The situation is that successful the existent environment, you don't truly privation to beryllium a seller if you're Credit Suisse. The marketplace knows you are nether pressure, truthful to effort and merchantability an concern banking concern successful the existent condition is going to beryllium precise challenging," helium said.

"The different happening is that portion it mightiness code concerns astir risk, it's precise improbable that they're going to merchantability this concern for thing adjacent to a profit, truthful you're not going to rise superior by disposing of this business."