Placing Credit Suisse Under Review: Increased Funding Costs Threaten Going-Concern Status

We place our CHF 2.90 per-share fair value estimate and narrow moat rating for Credit Suisse CSGN under review. Credit default swaps are now pricing in the possibility of a default. While a default is still not our base case, we cannot rule out this possibility. We now believe the best-case scenario is that Credit Suisse successfully executes another rights issue to shore up the confidence of wholesale funders and clients.

We previously expected that Credit Suisse would make a CHF 2.2 billion loss for 2023 and remain lossmaking into 2024. We believed that Credit Suisse’s capital would have been adequate to absorb such a loss. However, Credit Suisse’s funding costs have become so prohibitive that we expect the 2023 loss to increase to such an extent that its capital adequacy could be under threat.

Credit Suisse’s liquidity position seems adequate to handle deposit outflows, and it should also be able to obtain emergency liquidity from Switzerland’s central bank by borrowing against its bond portfolio. However, this does not solve Credit Suisse’s profitability challenge, nor does it address capital concerns.

To stem client outflows and ease the concern of providers of wholesale funding, we believe Credit Suisse needs another rights issue. A rights issue would be highly dilutive to shareholders. However, the indication from Saudi National Bank that it will not provide further financial assistance to Credit Suisse raises questions if a rights issue would even succeed.

We believe the alternative would be a breakup of Credit Suisse, with the healthy businesses—the Swiss bank, asset management and wealth management, and possibly some parts of the investment banking business—being sold off or listed separately. The markets or trading business would then be run off. In this event, it is unclear what the position of shareholders would be, but it could well mean that holding company bonds need to be bailed in, in which case equity would be wiped out.