Investors Concerned About How Long It Would Take Credit Suisse To Get Back On Track

Credit Suisse investors are concerned that the company will take a long time to get back on track to profitability. A series of scandals in recent months have not only tarnished the global bank’s reputation but have also resulted in billions of dollars in market value being lost — putting enormous pressure on the management.

The claim of Switzerland’s second-largest bank, that it is focused on creating value by offering services to its wealthy clientele with “care and entrepreneurial energy,” appears to have failed to persuade investors.

This is reflected in the company’s share prices plummeting by around one-third in a year, wiping off about 10 billion Swiss francs ($11 billion) from its market capitalization.

At the same time, the stock market valuations of other comparable big European banks – including Credit Suisse’s Zurich-based rival UBS – have skyrocketed by around 50 per cent in the same time due to the potential of higher interest rates.

“Credit Suisse has a long list of scandals and problems,” Stefan Sauerschell, a bond investor with Union Investment, said about the bank.

Credit Suisse, which was founded in 1856, now employs 48,770 people worldwide, including 3,510 relationship managers.

“We always thought the management process would be improved and then the next punch landed. If there was another billion-plus loss, it would be a catastrophe,” Sauerschell added.

Last week, however, things did not get much better when Credit Suisse reported a $2.2 billion quarterly loss that was worse than expected and warned of a bleak forecast for 2022, citing reorganization expenses and remuneration as reasons.

Following a year in which the lender lost 1.6 billion Swiss francs due to the sudden collapse of $10 billion in supply chain finance funds linked to bankrupt British finance firm Greensill and a $5.5 billion loss due to the implosion of investment fund Archegos, the bank’s shares were further battered due to the bleak outlook.

Credit Suisse has yet to provide its report on the Greensill issue, which has been slammed by proxy adviser Ethos.

“The bank should restore confidence with its shareholders and stakeholders by providing transparency on the roots and causes of the problems,” Ethos’s Vincent Kaufman said in an emailed response to Reuters.

Thomas Gottstein, who took over as CEO of Credit Suisse in 2020, said he was positive about the company’s potential to grow and that risk management remained “at the very centre of its DNA” following the results this week.

Credit Suisse did not respond to a request for comment on the matter.

Investors and analysts, on the other hand, are wary of the bank after learning of a change in how senior executives are compensated, as well as a reduction in revenue and bleak expectations.

“They are in a very difficult situation. We’ve seen the problems with Greensill and other cases filter down to the business, slowing it down,” Andreas Venditti, an analyst at Swiss bank Vontobel, said of Credit Suisse’s predicament.

“At the same time, the bank has to pay up more cash to keep its staff. Although this might keep staff happy, the market does not like higher costs. And the outlook is subdued.”

Despite reducing its incentive pool, Credit Suisse made things easier for its own bankers by using an innovative approach of paying hundreds of millions of dollars in cash upfront and reducing the number of shares it grants them.

According to the bank, which accepted a larger portion of the bonus decrease, senior bankers received 799 million Swiss francs in cash bonuses, up from 59 million francs in 2020.

This week, Moody’s Investors Service voiced concern about a decrease in money flowing into Credit Suisse, claiming that it might affect revenue and citing pressures on wealth management, restructuring costs, and rising staff pay as factors.

“We expect 2022 results to be weak,” the credit rating agency said. On the other hand, Citigroup analysts said it was “hard to find any positives” in the most recent results, although they do see long-term value in Credit Suisse’s shares.

The bank’s history continues to haunt it, making it more difficult to rehabilitate an image that is critical to maintaining a wealthy clientele.

In the first criminal trial of a major bank in Switzerland, Credit Suisse and a former employee are accused of allowing a suspected Bulgarian cocaine trafficking ring to launder millions of euros, some of it stuffed into suitcases.

Credit Suisse has dismissed all of the allegations, and one of its employees has denied any wrongdoing.

The trial has attracted enormous interest in Switzerland, and more Credit Suisse executives are anticipated to testify, with investors watching the proceedings closely.

“They need to … make sure that they don’t have any skeletons in the closet anymore,” one analyst, who asked not to be named, said of what Credit Suisse must now do.

“They have moved themselves into a position where you don’t give them the benefit of the doubt.”

(Adapted from BusinessLive.co.za)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s