Barclays On Eurobanks: UBS Upgraded, Credit Suisse, Deutsche Bank Downgraded

Litigation continues to be “a live issue” for the large European investment banks, with major cases in the pipeline and potential settlements in the coming months, Barclays’ Jeremy Sigee said in a report. He added that the upcoming litigation settlements could be large and trigger capital raising.

Credit Suisse Group AG (ADR) CS and Deutsche Bank AG (USA) DB have been downgraded from Overweight to Equal Weight. The price target for Credit Suisse has been reduced from $19 to $14, while that for Deutsche Bank is down from $28 to $16.50.

Both Credit Suisse and Deutsche Bank face the risk of the litigations further aggravating “already delicate earnings and capital positions,” and they could potentially lead to equity raising measures, Sigee commented. Meanwhile, their operational performances and restructuring efforts remain under pressure and their turnarounds could be delayed beyond the planned 2016 timelines.

The analyst upgraded the rating for UBS Group AG (USA) UBS from Equal Weight to Overweight, while reducing the price target from $21 to $17. He said that UBS seems to be much more resilient against these risks.

Impact Of Largest Litigation

The analyst said that the largest and most imminent litigation exposure appears to be US RMBS. He estimated central case settlement amounts of $4.5bn for Deutsche Bank and $2bn each for Credit Suisse and UBS.