Many news – negative mostly – for the Swiss investment bank, Credit Suisse, which recently declared that it will lay off as many as 9,000 employees by 2025, worldwide, and as a result its shares on the stock market have suffered.
The reason would be found in a willingness to restructure on the part of the company, although of course the primary cause would be the soaring credit default spread.
Summary
Losses for Credit Suisse: news drives stock down
In the third quarter of 2022, Credit Suisse was already losing as much as 4.034 billion francs, or about $4.09 billion, compared to analysts’ expectations of 567.93 million francs. Moreover, its revenue was already falling from the 434 million Swiss francs recorded during the same quarter of 2021.
With the strategy change Credit Suisse will implement to “radically restructure,” the bank believes it will cut costs by 15%, or 2.5 billion Swiss francs by 2025.
Thus, from 52,000 registered employees at the end of September 2022, it will be down to a staff of 43,000.
The bank’s new CEO, Ulrich Koerner, said the following:
“This is a historic moment for Credit Suisse. We are radically restructuring the investment bank to help create a new bank that is simpler, more stable and with a more focused business model built around client needs.”
Credit Suisse’s new strategy also includes changes to its risk profile with the goal of a 40% reduction in Rwa (risk-weighted assets) within three years, through changes to be implemented in four different areas of the bank’s expertise.
In particular, Credit Suisse’s press release mentions capital market and advisory activities will be renamed CS First Boston to “attract capital” and forge new “preferred partnerships” with other firms, while non-strategic high-risk, low-profitability activities, such as Prime Services, will be placed in the Capital Release Unit to end them.
News on capital increase, Credit Suisse stock affected
Another move thought by the bank to regain ground in the market would be to raise capital of 4 billion Swiss francs by issuing new shares to qualified investors, including Saudi National Bank, which has pledged to invest up to 1.5 billion Swiss francs. This would give the UAE bank a 9.9% stake in the Swiss company.
Credit Suisse and the performance of its stock on the market
After all this negative news, the market was bound to be affected, and indeed Credit Suisse’s shares on the stock market fell by a whopping 18% at the close on Thursday, 27 October.
Credit Suisse Group AG (CSGN) is listed on the Swiss stock exchange in Zurich.
Credit Suisse and the Credit Default Swap news
After all, it had been rumored for some time that Credit Suisse was at risk of default: in fact, the volume of Credit Default Swaps, an indicator used to determine the creditworthiness of a given credit institution, came back into the limelight last week because of the level reached by some of the most important merchant banks in the world including Deutsche Bank, Barclays, Intesa Sanpaolo, and precisely even Credit Suisse, which recorded bad data.
As a matter of fact, the Swiss merchant bank at the beginning of October had recorded a value of 255 CDS compared to 55 performing at the beginning of the year, the figure is at the highest since 2009 and means that insurance companies to protect the bank’s default risk are asking for much more as the risk of failure has increased fivefold in just three quarters.
Credit Suisse and criminal accounts
The scandal that hit Credit Suisse in late 2022 when a leak revealed that the bank’s clients include several criminals, fraudsters, and corrupt politicians certainly did not help either.
Indeed, The Guardian’s lengthy report had unearthed information about the owners of 80 billion francs held in the Swiss bank’s accounts.
