Concerns About Credit Suisse Mount After Debt Slide
Investors and analysts call on the Swiss bank to move faster with cost savings, fresh investor capital
Credit Suisse is one of the best capitalized banks in Europe by regulatory measures, but it faces challenges.
PHOTO: FABRICE COFFRINI/AGENCE FRANCE-PRESSE/GETTY IMAGES
By Margot PatrickFollow
Oct. 3, 2022 3:20 pm ET
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Credit Suisse Group AG came under renewed pressure over its financial health after the value of its riskiest bonds sank and the cost to insure against default rose sharply.
Investors and analysts called on the Swiss banking giant, which combines a Wall Street presence with a global specialty in managing rich people’s money, to move faster with cost savings and fresh investor capital to reassure markets.
The 166-year old bank is one of the best capitalized in Europe by regulatory measures. But it may need to raise billions of dollars in new stock to fund a pending restructuring and rising legal costs, analysts say. Its core investment banking business also faces one of the roughest periods since the start of the pandemic from a drought in deal making and corporate fundraising.
Over the weekend, the scandal-prone Swiss lender became a trending topic among armchair investors on Twitter and Reddit forums, who speculated that the bank was in trouble. Credit Suisse has sought to reassure investors and clients that it is in sound shape, and last week said it is moving to sell assets as part of its new business plan.
Credit Suisse stock tumbled as much as 11% Monday, but rebounded late in the day to end down less than 1%. Still, the shares are down substantially for the year and its market capitalization is around $10.6 billion, less than half of what it was in February.
The value of one of its riskiest types of debt, which can be canceled or converted to equity if a bank gets into trouble, fell to around 77 cents on the dollar, from 86 cents on Friday.
The cost to insure against the bank defaulting on its debt using 5-year credit-default swaps rose Monday to its highest level in years. It cost investors 335 euros per €10,000 of exposure (equivalent to around $9,800) from €250 Friday, according to S&P Global Market Intelligence. The cost for one-year credit insurance rose to €483, meaning investors were paying up for the likelihood a default could happen quickly.
“Credit Suisse has quite a liquid balance sheet and its capital position is strong. The only thing that has changed given the eventful weekend is the pressure to raise capital,” said Filippo Alloatti, head of financials for credit at Federated Hermes, an investment management company.
He said people on Twitter and other social media seem to be trying to spark a bank run, and that Credit Suisse may need to assemble a deal as soon as within the next couple of days or this week.