The high cash outflows in asset management are increasing the unrest surrounding the big bank.
Credit Suisse shareholders again recorded heavy losses on Monday.
With 4 billion francs of additional capital and a “radical” transformation plan, the big bank Credit Suisse wanted to win back the trust of investors and customers. However, Monday’s market action shows that much of that confidence is gone, at least for now.
After the CS shares were traded without subscription rights for the first time on Monday morning, the share price of the big bank temporarily fell below the CHF 3 limit and was CHF 3.01 at the end of trading on Monday evening. The stock closed down more than 9 percent, while the SMI ended the day almost balanced. Seen over five days, the price decline at CS is almost 20 percent.
CS stock decline is not alone
explained by the capital increase
According to Rainer Skierka, banking expert and analyst at Research Partners, only part of the renewed price loss can be explained by the ongoing capital increase at CS: A decline was to be expected after Credit Suisse announced the definitive conditions of the subscription rights offer for existing shareholders on Thursday evening – but not on the scale that has taken place now.
The conclusion is that this is another vote of no confidence in the market towards CS. Last week, the bank had to report outflows of customer funds of more than 80 billion francs, which corresponds to around 6 percent of all customer assets. The elimination of that money means CS will be making less money from fees going forward and putting more effort into finding its way back to profitability.
The sharp rise in the price of credit default insurance for CS debt securities, which also took place on Monday, fits into the picture. These so-called Credit Default Swaps (CDS) are considered the fever gauges of the financial markets. On Monday, the bank’s five-year CDS spread rose again to record levels seen in early October.
At the time, an Australian business journalist triggered panic in the markets after writing in a since-deleted tweet on October 1, citing an allegedly credible source, that a major international investment bank was “on the brink”. After a sharp rise, CDS spreads fell again. The situation eased further when CS announced its plans for a capital increase with the Saudi National Bank (SNB) as the new major shareholder.
But since the beginning of November, the nervousness expressed by the CDS spreads has been steadily increasing again. The analyst Skierka considers the increase in CDS spreads to be even more serious than the fall in the share price, as this has a direct impact on the bank’s ability to act: “Lenders and customers will demand higher interest rates for their money, which makes it even worse for CS more difficult to carry out the transformation.” Part of the distrust is also due to the information gap that prevails in the market. Everything must now be done by CS to curb fears of a bank run.
Andreas Venditti, an analyst at Vontobel, also told Bloomberg news agency “stunned” by the outflows and predicted that Credit Suisse would report another loss next year due to high funding costs. He lowered his price target for the stock to 3.5 from 4 francs.
The CS Switzerland boss is trying to calm the markets
An interview with the head of Credit Suisse Switzerland, André Helfenstein, published in the “Sonntags-Zeitung” over the weekend shows that the bank management is currently unable to calm the markets.
Helfenstein said some Swiss Bank customers withdrew some of their money, “but very few actually closed their accounts.” In the meantime, customer assets have stabilized, only 1 percent of the asset base has been lost in the course of market uncertainty.
A spin-off of the Swiss business from the international part of CS is not an issue. It should not be forgotten that the current structure allows Swiss Bank to draw on the competencies of the global asset management and investment banking teams. “This is critical as it allows us to be competitive in serving our internationally oriented clients and businesses,” said Helfenstein.
The interview did not have the desired effect, as the share price development on Monday clearly showed.