Credit Suisse Downgraded Again as JPMorgan Doubts Strategy Shift
Equity analysts are increasingly negative about the outlook for Credit Suisse Group AG, evidence that a much-touted strategy shift this month is failing to convince investors.
After Deutsche Bank AG and KBW Inc., analysts at JPMorgan Chase & Co. are third to downgrade Credit Suisse shares since the Swiss bank hosted its investor day on November 4. The analysts led by Kian Abouhossein cut the stock to underweight from neutral, the second reduction this year after being overweight on the shares at the beginning of 2021.
Credit Suisse Chairman Antonio Horta-Osorio spent six months conducting a root-and-branch review of Credit Suisse after disastrous risk lapses wiped out billions in profit, plunged the bank into crisis and led to an overhaul of top management. He elected to pare back areas that backfired while investing in the more stable businesses of helping the world’s wealth manage their fortunes.
The consensus rating on the stock is now the lowest since 2017 with four analysts rating Credit Suisse a sell or equivalent, data compiled by Bloomberg show. Credit Suisse shares fell 1.8% on Tuesday, increasing its decline to over 7% since the investor day. The stock is down 19% this year, making it the only major European banking stock in the red.
“We would have welcomed a more aggressive shrinkage of the investment bank to an ‘execution-only wealth-management’ model,” Abouhossein wrote in a note, arguing that this would further reduce capital consumption of a unit that only produced a 7% return on equity between 2016 and 2020.
The Swiss bank is discontinuing most prime brokerage services after the implosion of Bill Hwang’s family office cost it billions of dollars and is shrinking the investment bank by about a quarter. It is also simplifying its structure into four divisions, including a single unit that groups together its wealth management businesses.
While shares remain “cheap on paper,” uncertain revenue drivers and the focus on capital preservation rather than returning money to shareholders makes its risk-reward less attractive than peers, Abouhossein says.
What Bloomberg Intelligence Says
“As Credit Suisse shifts its strategic focus and improves risk controls, revenue and knock-on risks are a key medium-term challenge. An emphasis on wealth management should support profitability and top-line stability as its investment bank shrinks.”
Alison Williams and Neil Sipes, BI banking analysts. For the full note click here.
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