Credit Suisse at a crossroads as stocks slide again

Credit Suisse shares fell again Friday despite being bolstered by the Swiss central bank as investors worry about which road the embattled lender will take to try and restore confidence.

Yet more drastic restructuring, closing its investment banking arm or even a takeover by a rival were being mooted by analysts studying Switzerland's second-biggest bank, one of 30 deemed of global importance to the international banking system.

Amid fears of contagion after the collapse of two banks in the United States, on Wednesday Credit Suisse's biggest shareholder said it would "absolutely not" up its stake in the bank for regulatory reasons.

That triggered panic in the markets and the bank's shares plunged more than 30 percent during the day's trading to a new record low of 1.55 Swiss francs a share.

The Swiss National Bank came to the rescue in a bid to reassure the markets, with Credit Suisse announcing it would borrow 50 billion francs ($54 billion) from the SNB to reinforce the group.

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After recovering some ground on Thursday, Credit Suisse shares closed down eight percent on Friday at 1.86 Swiss francs each as the Zurich-based lender struggled to regain the confidence of investors.

Highly unlikely bankruptcy

The central bank lifeline raises questions about whether an orderly bankruptcy could happen, in which regulators would take over Credit Suisse and take charge of dismantling it.

This is a "fantasist" hypothesis, said David Benamou, chief investment officer of Paris-based Axiom Alternative Investments.

He stressed that Credit Suisse was "one of the best capitalised banks in Europe".

Credit Suisse's CET1 ratio, which compares a bank's capital to its risk-weighted assets, stood at 14.1 percent at the end of 2022 -- slightly less than HSBC but more than that of BNP Paribas, which are among the largest banks in Europe.

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It now has a huge amount of liquidity on its hands thanks to the SNB's intervention.

Merger with UBS

Analysts at financial services giant JPMorgan, insisting that "status quo is no longer an option", considered the scenario of a takeover by another bank, with UBS, Switzerland's biggest, "the most likely".

Given the weight such a merger would confer on the two banks, they thought the Swiss domestic branch of Credit Suisse, which includes retail banking and loans to small and medium enterprises, could be listed on the stock market or spun off.

Both UBS and Credit Suisse declined to comment when contacted by AFP.

With the collapse of Credit Suisse's stock -- shares were worth 12.78 Swiss francs in February 2021 -- its market capitalisation has melted, potentially making it easy prey.

The idea of Switzerland's biggest banks joining forces regularly resurfaces but is generally dismissed due to competition issues and risks to the Swiss financial system's stability, given the size of the bank that would be created by such a merger.

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"The question arises because there are many candidates which might be interested," said Benamou, while the market capitalisation of Credit Suisse oscillates "between six and eight billion francs from one day to the next".

"However, the Credit Suisse management, even if forced to do so by the authorities, would only choose (this option) if they have no other solution," he said.

The bank is starting to roll out its restructuring plan laid out in October, while UBS has spent several years addressing its own issues.

Benamou doubted the bigger bank would want to embark on a further overhaul now that it is starting to reap the rewards of having put its own house in order.

A more radical revamp

Following the bank collapses in the United States, Credit Suisse's credit default swaps shot up.

These CDS derivatives, which allow investors to protect themselves against the risk of non-reimbursement of a debt, are a barometer of market concerns.

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Faced with these tensions, analysts at the US financial services firm Morningstar thought the bank might be forced to turn to the markets, despite the capital increase completed in November -- the alternative option, they thought, being a break-up of its activities.

With the SNB's help, Credit Suisse gained "precious time" to do a more radical revamp, Morningstar analyst Johann Scholtz said.

He believes the current restructuring is "too complex" and "does not go far enough" to reassure funders, clients and shareholders.

"The key to restoring confidence and ensuring its viability is for Credit Suisse to shut down its loss-making securities-trading business in an orderly fashion," he said.

JPMorgan analysts floated a radical option which would be to close down its investment banking activity altogether.

Source: AFP