Credit Suisse could suffer $4.3 billion loss in 2022, says Moody's

Credit Suisse has reported 1.9 billion Swiss francs (S$2.7 billion) of losses in the first half of the year. PHOTO: REUTERS

NEW YORK - Rating agency Moody's Investors Service expects losses for Credit Suisse to swell to US$3 billion (S$4.3 billion) by year end, potentially bringing its core capital below the key 13 per cent level, Moody's lead analyst on the bank told Reuters.

Credit Suisse reported 1.9 billion Swiss francs (S$2.7 billion) of losses in the first half of the year. In July, the bank said it expected to operate with a common equity tier 1 (CET1) ratio of between 13 per cent and 14 per cent for the rest of 2022.

"We are forecasting further losses in the second half of the year," said Mr Alessandro Roccati, senior vice-president in the financial institutions group of the rating agency. "We are looking at US$3 billion losses for the full year, which means the CET1 is going to be slightly below 13 per cent."

If the core capital ratio stays consistently below 13 per cent, it would be "credit negative" for the bank, Mr Roccati said in an interview.

Reddit chats and Twitter threads have been rife with talk from armchair investors about a possible imminent collapse of the Zurich-based institution, and how its effects could ripple across the global financial sector, as the bankruptcy of United States investment bank Lehman Brothers in September 2008 accelerated the global financial crisis.

Morningstar banking analyst Johann Scholtz, however, said a Lehman-style collapse is unlikely, arguing that Credit Suisse is well capitalised, or at worst its capital adequacy is in line with its peer group.

On Friday, the cost of insuring exposure to debt issued by Credit Suisse dropped after the bank said it would buy back up to 3 billion francs of debt at deeply discounted prices, taking advantage of the slump in market prices.

Credit Suisse’ five-year credit default swaps (CDS) fell 42 basis points from Thursday’s close to 308 basis points, data from S&P Global Market Intelligence showed.

Shares in the bank rose by 3 per cent on the day to their highest since Sept 23, while the price of Credit Suisse’ bonds also ticked higher, reflecting a degree of relief among investors. 

“The transactions are consistent with our proactive approach to managing our overall liability composition and optimising interest expense, and allow us to take advantage of market conditions to repurchase debt at attractive prices,” Credit Suisse said in a statement.

The debt buyback echoes a US$5.4 billion offer made by Deutsche Bank in 2016 as markets pummelled the German lender. 

The bond buyback is Credit Suisse’ way of “muddling through the current situation” as it hopes to bring down its CDS spreads before it taps the bond market again to raise capital, said Dr Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis.

“Credit Suisse may also have picked the right time as the current market also happens to be one of the few windows this year for companies to raise bonds in the public market,” she added.

Credit rating agency S&P affirmed Credit Suisse’ long-term rating at BBB on Thursday, saying that the outlook remains negative amid continued uncertainties around its upcoming strategic review and targeted operating model. REUTERS, BLOOMBERG

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