Credit Suisse Group CS is dominating headlines Monday morning amid rising concerns over the Swiss bank's financial health.
What Happened: Reports suggesting Credit Suisse could be battling liquidity issues sent the lender's shares tumbling Monday morning. The bank's credit default swaps, which provide investors with protection against financial risks and essentially measure how a company's financial health is perceived by the market, soared to record levels.
Credit Suisse has faced questions over its risk management practices in the past. The bank has been plagued by a string of scandals and most notably took a $5.5-billion hit following the collapse of U.S. investment firm Archegos Capital.
Shareholders have previously expressed concerns that Credit Suisse is fundamentally unable to compete with bigger Wall Street banks. In the company's most recent quarter, Credit Suisse reported a net loss of approximately $1.6 billion, which was down on a year-over-year basis from earnings of more than $250 million.
Now Credit Suisse is considering turnaround plans. The Swiss bank recently said it's in the process of a strategy review that includes potential divestitures and asset sales.
"While there has been a heightened level of media and market speculation about the potential outcome over the past days, the bank is committed to providing further details on the progress of the strategic review," the bank said in a statement.
The strategic review includes "measures to strengthen the wealth management franchise, transform the Investment Bank into a capital-light, advisory-led Banking business and more focused Markets business, evaluate strategic options for the Securitized Products business, which includes attracting third-party capital, as well as reduce the Group’s absolute cost base to below CHF 15.5 bn in the medium term, as stated on July 27, 2022," the statement said.
Why It Matters: As Credit Suisse shares fall alongside the bank's bonds, BofA Securities analysts expect the bank to make "reassuring announcements shortly."
"We believe that capital-generative measures, if announced promptly, could help restore confidence in the bank," BofA analysts wrote in a note to clients.
The firm noted the surge in credit default swaps shows that pressure on the bank to make an announcement is rising. BofA expects that an equity raise will likely be a core part of the restructuring.
On the other hand, JPMorgan analysts described Credit Suisse's capital and liquidity positions as "healthy," per Reuters.
The bank's second-quarter end ratio is well within its target range and its liquidity coverage ratio is well above requirements, JPMorgan analysts said in a note to clients.
Fox Business' Charles Gasparino noted the consensus among Wall Street banks is that the situation is not as bad as the credit default swaps surge appears to signal.
"Consensus among top Wall Street banks on @CreditSuisse is the issues plaguing the investment bank are not as dire as the social media speculation and it’s CDS trading would indicate but they’re all watching very closely monitoring their exposure," he said via tweet.
Credit Suisse is scheduled to announce its third-quarter financial results on Oct. 27. The bank said it will provide further updates on its comprehensive strategic review in connection with its quarterly results.
CS Price Action: Credit Suisse shares were trading sharply lower in Monday's premarket session, before reversing and turning positive.
The stock was up 1.15% at $3.97 at time of publication, according to Benzinga Pro.
Photo: Dmitry Karyshev from Flickr.
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