Credit Suisse launched its 2024 strategy in November 2021.
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Credit Suisse Group AG risks losing its investment banking and wealth management business due to cultural and organizational changes.
The bank’s 2024 strategy is expected to provide a leaner, low-risk structure, with a smaller investment bank and more capital allocated to wealth management. However, analysts question Credit Suisse’s ability to retain clients and market share in these two key areas during the renewal.
The second largest Swiss bank still faces reputational damage as a result of the collapses of the hedge fund Archegos Capital and the financial services firm Greensill Capital (UK) Ltd. in early 2021. In addition, the weak economy and strong market competition in 2022 cwould jeopardize the execution of its strategy, according to credit and equity analysts.
Weak Q1 revenues in both investment banking and wealth management further fueled market concerns about the loss of business and the deterioration of the franchise in the two divisions.
Credit Suisse declined to comment. Bank CEO Thomas Gottstein said 2022 will be a transition year.
Market conditions were tough for all banks in the first three months of 2022, but Credit Suisse outperformed its competitors even without the negative effects of the market and restructuring, analysts say.
While some of the 53% adjusted revenue decline at Credit Suisse investment bank can be attributed to the business mix and downsizing of the group’s prime brokerage operations, the underlying trend in revenue was more negative than its peers. global, Alessandro Roccati, senior vice president of Moody’s Group of Financial Institutions, said in an interview.
The exit from premium services has likely hurt other parts of the investment bank. Q1 data showed signs of franchise erosion given Credit Suisse’s substantial underperformance in fixed income, currency and commodity trading, Berenberg equity analysts said in a May 10 research note.
The investment bank is rapidly emerging as a key operational issue for Credit Suisse as the group continues to lose market share and front office staff to the competition, Société Générale analysts said in a research note dated April 27. . Increasing the profitability of the unit in the future could be a challenge given the loss of premium services as a source of revenue, they said.
In wealth management, Credit Suisse’s first quarter adjusted net revenue fell 22% year-on-year, primarily due to lower transaction-based revenue, primarily in the Asia Pacific region. According to data from Market Intelligence, the sector’s revenues at the other major European banks were flat or slightly above the level of the previous year.
Peers also suffered from the negative performance during the quarter, including a slowdown in the Asia-Pacific business. But the situation for Credit Suisse is more complex, Maria Rivas, senior vice president of DBRS Morningstar’s group of global financial institutions, said via email. Part of the Swiss group’s revenue weakness could be explained by the reputational damage suffered on Archegos and Greensill, Rivas said.
The bank’s underperformance relative to its competitors raises questions about Credit Suisse’s ability to maintain its otherwise strong wealth management franchise during the restructuring, Christian Scarafia, Head of Ratings for Northern European Banks at Fitch Ratings, said in an interview. .
Fitch downgraded Credit Suisse’s long-term default rating to “BBB +” from “A-” on May 18, saying the group’s weak operating profitability relative to competitors highlights the risk of executing its restructuring and challenges to improve. its performance over the next 24 months.
S&P Global Ratings, which downgraded the credit rating of the long-term issuer of Credit Suisse Group to “BBB” from “BBB +” on May 16, said it views the bank’s performance targets “as ambitious, particularly in context of widespread management change and economic uncertainties. “
“Negative one-offs and fallout from parts of the group’s investment banking business will dent profitability in the medium term,” Anna Lozmann, principal analyst at S&P Global Ratings for Switzerland, Austria and Central Europe, said in an email. and oriental.
Based on recent earnings and management announcements, it is clear that Credit Suisse will need more time to meet its strategic objectives and implement planned changes in culture and risk management, Moody’s Roccati said. “The changes in senior management, which has been replaced almost entirely, remain a clear risk,” Roccati said.
Credit Suisse has replaced eight of its 12 board members in the past two years, Jefferies analysts estimated in a May 12 statement. Three other board members, namely General Councilor Romeo Cerutti, CFO David Mathers, and Asia Pacific CEO Helman Sitohang, will also leave. After their departure, CEO Gottstein will be the only one to have served on the board before 2020.
President Axel Lehman, who held his position for less than six months, recently said Gottstein had his full support, dismissing news of a potential plan to replace the CEO.
According to data from Market Intelligence, Credit Suisse is behind most of its European competitors in terms of trading multiples, due to falling share prices and lower consensus expectations for short to medium earnings.
In the current uncertain market environment, investors are likely to shy away from Credit Suisse given the negative outlook for its performance, CFRA Research equity analyst Firdaus Ibrahim said in an email. Instead, they are likely to choose bank stocks with better profit and dividend prospects.
In the first quarter, operating expenses exceeded operating income for the first time in the past two years, data from Market Intelligence shows.
The average consensus forecast for the bank’s revenues in 2022 points to a 15% decline year-over-year, with a gradual recovery in 2023 and 2024.
In 2022, Credit Suisse is expected to struggle with falling revenues and rising costs as it moderates its risk appetite as it supports its restructuring and seeks to retain talent in a competitive market, Ibrahim said.
“Reputational damage, coupled with deteriorating macroeconomic outlook due to geopolitical instability, can also impact customer confidence, further hindering [the bank’s] top line, ” Ibrahim She said.
This S&P Global Market Intelligence news article may contain information on credit ratings issued by S&P Global Ratings. The descriptions in this article were not prepared by S&P Global Ratings.