For Credit Suisse, the stock market has been going downhill for days. Investors have doubts that the Swiss will be able to restructure the bank without a capital increase. An attempt at appeasement only increases the concerns. In the meantime, memories of the financial crisis of 2007 are awakening.
The major Swiss bank Credit Suisse is fighting for the trust of investors and employees. In a memo to staff and in a series of phone calls to investors over the weekend, sources say she tried to allay concerns about insufficient capital strength. However, this did not calm the markets. "That made the uncertainties so clear to the outside world and achieved exactly the opposite of the calming effect that was actually intended," says a trader. As a result, the share continued to plummet: the Credit Suisse paper lost more than nine percent in Zurich in the meantime and thus lost almost a third of its value in the past few weeks.
And not everyone can escape the pull: Investors are also fleeing from Danish financial stocks. The shares of Jyske Bank, Sydbank and Danske Bank each fell about five percent in Copenhagen. "It's not that far yet, but investors fear that we're going to get a new financial crisis, where the players on the markets no longer trust each other," says analyst Per Hansen from the brokerage house Nordnet. In Germany, Deutsche Bank and Commerzbank each lost more than 2.5 percent over the course of the day.
Citigroup now speaks of Credit Suisse as a "purchase for the brave". The market appears to be pricing in a highly dilutive capital increase. However, such a move is by no means a foregone conclusion and as such Citigroup is arguing that CS is a buy at this level, but headlines are likely to remain negative. Citigroup sees the current development of spreads less as a liquidity concern and more as an inconvenience for funding costs and for private banking. There is a risk of further outflows due to the negative headlines in the media.
Based on the figures for the second quarter, he considers the institute's capital and liquidity position to be good, emphasized analyst Kian Abouhossein from the US bank JP Morgan. The increase in CDS must be seen in the context of the uncertain economic outlook. Default insurance has also recently become more expensive for other financial institutions. The first experts are already remembering 2007, when the financial crisis began to brew.
Credit default swaps (CDS) are derivatives that investors use to protect themselves against the insolvency of a company. The deteriorating market situation indicates that Credit Suisse could find it difficult to pay for the planned restructuring if it raises capital.
Insiders said there had been no formal request to shareholders for a capital increase. Credit Suisse announced in late July that it would transform its investment bank and exit some other businesses. The goal is a leaner, less risky institution after last year's debacle like Archegos Capital Management cost the bank $5.1 billion.
The Swiss have a large domestic business serving all types of clients and compete globally in wealth management, investment banking and asset management. The bank's shares have traded below book value for years, a metric that investors often watch as various management teams struggled to get a grip on problems within the bank.
In the memo to employees, bank boss Ulrich Körner pointed out that the bank is at a critical stage before presenting a strategy update on Oct. 27 that aims to outline plans for the investment bank. Körner explained to the employees that they should not confuse the development of the share price with the bank's capital strength and liquidity. In the interview guides for its bankers and relationship managers updated on Sunday, Credit Suisse said it has a capital buffer of nearly $100 billion and still expects an equity ratio of 13 to 14 percent for its common equity for the rest of the year.
A bankruptcy of Credit Suisse is still very unlikely, according to Swissquote analyst Ipek Ozkardeskaya. The bank is "too big to fail," she says. It's more likely that Credit Suisse will become a takeover target or that the Swiss government will step in to save it from imploding, Ozkardeskaya said. But the new CEO could also strengthen the bank as part of the strategic review planned for the end of October so that it could survive until the next scandal, she says.
