Nervous customers at Credit Suisse, the No. 2 Swiss bank, have withdrawn about $84 billion and moved it to rival banks since the beginning of October over uncertainty about the bank’s financial health and fears of imminent collapse during its longest-ever run of share losses.
The bank’s shares have fallen to 30-year lows and Credit Suisse said it expected a pre-tax loss of up to $1.6 billion in the fourth quarter of 2022 in its fourth profit warning since January. On Thursday, Dec. 1, shares were 40 percent lower than when the bank announced a radical restructuring in late October.
The bank is trying to recover from a series of scandals by focusing on its flagship wealth management franchise and cutting back investment banking, Reuters reported. This could trigger speculation of a takeover or lead to the partial sale of its domestic unit, JPMorgan analysts said Thursday.
“Should outflows be ongoing … M&A speculation (is) likely to increase and may lead to an IPO of the CS Schweiz legal entity worth an estimated 14 billion francs, full closure of the investment bank, and retaining wealth management and asset management in the NewCo,” JPMorgan said in a note to clients.
The Credit Suisse share price has dropped about 66 percent this year to record lows as the bank tries to raise $4.27 billion francs to shore up its finances.
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A share sale and restructuring were supposed to restore market confidence, Wall Street Journal reported. Instead, more investors are betting against the bank. The dilution from the capital raise has added to the pressure from years of scandal and mismanagement. The new shares are due to start trading on Dec. 9.
Around $1 billion or 8 percent of Credit Suisse stock and deposits have been shorted or borrowed and sold with the aim of buying them back later for less, according to data provider S3 Partners. This is up from less than 3 percent in early October before Credit Suisse said it would sell new shares.
The shorting has added to broader selling, which has been on its longest losing streak since October 2007, according to Dow Jones Market Data.
The main business for Credit Suisse is wealth management for the ultrarich. In the wake of scandals and financial loss, a new management team devised a plan to cut thousands of jobs, raise new capital and pull back from Wall Street.
Speaking at the FT Global Banking Summit, Credit Suisse Chairman Axel Lehmann blamed social media for causing customers to pull around $88.3 billion in deposits and investments between Sept. 30 and Nov. 11.
“The force and the uncontrollable events in the social-media storm — that was unbelievable,” Lehmann said.
Debt investors have also been selling recently, pushing up yields, while the cost has risen to new heights to insure Credit Suisse debt against default.
The bank said it could pay a fine to the U.S. Federal Reserve over its handling of the collapsed Archegos Capital Management, which cost Credit Suisse more than $5 billion in 2021, adding to litigation and regulatory investigations already facing the bank.
“Credit Suisse shares are a tough buy at this point,” said Frederik Hildner, founder and CEO of boutique asset manager Confluente Capital, which holds no Credit Suisse stock, in an email. “Valuation is low but from an investor’s perspective the lender really looks in a very bad shape and there is no visibility of any immediate improvement in share price performance.”
Photo: Zurich’s Paradeplatz, home to Credit Suisse, has some of the most expensive real estate in Switzerland. https://commons.wikimedia.org/wiki/User:SISHION https://en.wikipedia.org/wiki/en:Creative_Commons https://creativecommons.org/licenses/by-sa/3.0/deed.en