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Credit Suisse has had a tough time. One crisis follows the next. Now a major renovation should bring the former top bank back on track.
Credit Suisse has lost a lot of trust over the past two years with breakdowns, massive losses and the stock market crash. In the new year, the big bank must now make decisive progress with its restructuring. According to the banking expert Teodoro Cocca (51), the conversion will be “a close thing”.
The urgency of the situation is recognized by the big bank: In October, the CS management announced a “strategy update” with extensive cost savings and a clear redimensioning of the loss-making investment bank unit. Nevertheless, distrust in the stock market remains high.
Is the new strategy too late?
Bank analysts continue to lack clarity regarding numerous crucial points in the new strategy. The CS share, which had fallen by almost 70 percent in 2022, remained below 3 francs at the beginning of the year and will probably have to worry about staying in the Swiss Market Index in the future.
Credit Suisse’s plan is probably correct, but comes “very late” and in a phase of great uncertainty around the bank, says Teodoro Cocca, Professor of Asset Management at the University of Linz, to the AWP news agency.
In the past, the CS apparently meant to draw the right lessons from the events by making minor adjustments. “Had the exact same plan been announced much earlier, it would have been just as correct and you could have acted from a much stronger position.”
After all, rising interest rates and “possibly rising stock markets” could help stabilize earning power, according to the Swiss banking expert. With this tailwind from the markets, the implementation of the strategy “with a lot of luck” seems realistic. “But it will be a close thing.”
6 percent of assets deducted from CS
However, further cash outflows in the important asset management business as well as further large losses would jeopardize the implementation of the strategy, emphasized Cocca. Between the beginning of October and mid-November, CS customers withdrew around 6 percent of the assets under management after rumors of a financial crisis at the bank. CS President Axel Lehmann subsequently assured several times that the situation had stabilized since then.
“Should additional significant measures become necessary, this will mean from now on that CS as we know it today no longer exists – since either the ownership structure would change or a more extensive split would be necessary,” warns Cocca.
Scenarios of a possible split of the big bank are not new. Already in the past year, analysts had made corresponding thoughts several times: After a reduction of the investment bank, the asset management business could then be taken over and at the same time the profitable Swiss CS business could be listed on the stock exchange.
Distrust still high on the markets
The persistently high prices for hedging against default on Credit Suisse bonds, known as credit default swaps (CDS), also point to the ongoing distrust on the markets. These are still around 380 points compared to around 76 points for the competitor UBS.
According to banking expert Cocca, the probability of default of the CS bonds within the next two years was around 12 percent at the end of the year from the derivative prices. However, this is a snapshot: «If CS can soon announce more positive news again, this will lead to a calming down around the bank. At least in the short term.” (SDA/shq)