Credit Suisse launched its 2024 strategy in November 2021.
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Credit Suisse Group AG is at risk of losing its investment bank and wealth management business as it undergoes cultural and organizational changes.
The bank’s strategy until 2024 should provide a lighter and lower risk structure, with a smaller investment bank and more capital allocated to wealth management. However, analysts question Credit Suisse’s ability to retain customers and market share in these two key areas during the upgrade.
The second largest bank in Switzerland is still facing reputational damage from hedge fund collapses Archegos Capital and financial services company Greensill Capital (UK) Ltd. in early 2021. In addition, weak economy and strong market competition in 2022 ° Cwould jeopardize the implementation of its strategy, according to credit and capital analysts.
Weak revenue in the first quarter, both in investment banking and wealth management, further fueled market concerns about business losses and franchise depreciation in both divisions.
Credit Suisse declined to comment. The bank’s chief executive Thomas Gotstein said 2022 would be a year of transition.
Market conditions were difficult for all banks in the first three months of 2022, but Credit Suisse performed worse than its competitors, even if negative effects on the market and restructuring are ruled out, analysts said.
While part of the adjusted revenue decline of 53% in Credit Suisse’s investment bank may be due to the business mix and the reduction of the group’s main brokerage operations, the main revenue trend was more negative than its global counterparts, Alessandro Rocati. senior vice president at Moody’s Group of Financial Institutions, said in an interview.
The release of basic services may have hurt other parts of the investment bank. Data for the first quarter show signs of franchise erosion, given Credit Suisse’s significantly lower performance in fixed income, currency and commodity trading, Berenberg stock analysts said in a note on May 10.
The investment bank is quickly emerging as a key operational issue for Credit Suisse as the group continues to lose market share and front office staff at the expense of competitors, analysts at Société Générale said in a note on April 27. Increasing the unit’s profitability in the future could be a challenge, given the loss of first-class services as a source of revenue, they said.
In wealth management, Credit Suisse’s adjusted net income for the first quarter fell 22% year-on-year, mainly due to lower transaction revenues, especially in the Asia-Pacific region. According to Market Intelligence, revenues in the sector of other major European banks are equal to or slightly above the level of the previous year.
Peers were also affected by negative trends during the quarter, including a slowdown in business in Asia and the Pacific. But the situation for Credit Suisse is more complicated, Maria Rivas, senior vice president of DBRS Morningstar’s group of global financial institutions, said by email. Part of the Swiss group’s revenue weakness could be explained by reputational damage suffered by Archegos and Greensill, Rivas said.
The bank’s lower performance vis-à-vis its counterparts raises questions about Credit Suisse’s ability to maintain its otherwise strong wealth management franchise during restructuring, Christian Scarafia, head of northern European banks’ ratings at Fitch Ratings, said in an interview.
Fitch downgraded Credit Suisse’s long-term default rating of “BB- +” from “A-” on May 18, saying the group’s poor operating profitability compared to competitors underscored the risk of its restructuring and the challenges of boosting its performance in the next 24 months.
S&P Global Ratings, which downgraded the issuer’s long-term credit rating to Credit Suisse Group to BBB from BBB + on May 16, said it saw the bank’s performance targets as “ambitious, especially in the context of widespread governance change and economic uncertainty. “
“Negative one-off events and the effects of parts of the group’s investment banking business will reduce medium-term profitability,” said Anna Lozman, S&P Global Ratings’ lead analyst for Switzerland, Austria and Central and Eastern Europe.
Based on recent revenue and management announcements, it is clear that Credit Suisse will need more time to achieve its strategic goals and implement the planned changes in culture and risk management, said Moody’s Roccati. “Changes in senior management, which have been almost completely replaced, remain a clear risk,” Rocati said.
Credit Suisse has replaced eight of its 12 executive members over the past two years, Jefferies analysts estimated in a May 12 note. Three other board members, namely Chief Adviser Romeo Cerutti, Chief Financial Officer David Mathers and Chief Executive Officer of the Asia-Pacific Region Hellman Sitohang, are also leaving. Following their departure, CEO Gotstein will be the only one to serve on the board before 2020.
Chairman Axel Lehmann, who has been in office for less than six months, recently said Gotstein had his full support, rejecting reports of a potential plan to replace the CEO.
Credit Suisse lags behind most of its European counterparts in terms of trading ratios due to falling stock prices and reduced expectations of a consensus for short to medium profits, according to Market Intelligence.
In the current uncertain market environment, investors are likely to avoid Credit Suisse, given the negative outlook for its performance, said Firdaus Ibrahim, a stock analyst at CFRA Research, in an email. Instead, they are likely to choose bank stocks with better earnings and dividend prospects.
In the first quarter, operating expenses exceeded operating revenues for the first time in two years, according to Market Intelligence data.
The average consensus forecasts for the bank’s revenues in 2022 show a decline of 15% on an annual basis, with a gradual recovery in 2023 and 2024.
Credit Suisse is expected to fight falling revenues and rising costs in 2022 as it curbs its appetite for risk while supporting restructuring and trying to keep talent in a competitive market, Ibrahim said.
“Reputational damage, coupled with deteriorating macroeconomic prospects due to geopolitical instability, can also affect customer confidence by further hampering [the bank’s] top line “, Ibrahim said.
This news article from S&P Global Market Intelligence may contain information on credit ratings issued by S&P Global Ratings. The descriptions in this news article were not prepared by S&P Global Ratings.