Credit Suisse investors see no sign of light at the end of the tunnel

FRANKFURT — Weary Credit Suisse investors fear a long wait for the bank to get back on track after a series of scandals that wiped billions from its market value and piled pressure on management.

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While Switzerland’s second-largest bank claims to be able to create value by serving its wealthy clients with “benevolence and an entrepreneurial spirit”, the market is not yet convinced and its price has fallen by almost a third in one year. , knocking some 10 billion Swiss francs ($11 billion) off its valuation.

Meanwhile, other major European banks, buoyed by the prospect of higher interest rates, have gained almost 50% in market value over the same period and Zurich rival UBS has left Credit Suisse. for dust.

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“Credit Suisse has a long list of scandals and problems,” Union Investment bond investor Stefan Sauerschell said of the bank, which was founded in 1856 and has 48,770 employees and 3,510 relationship managers worldwide. .

“We always thought the management process would be improved and then the next punch would come. If there was another loss of over a billion, it would be a disaster,” Sauerschell added.

Weary Credit Suisse investors fear a long wait for the bank to get back on track after a series of scandals that wiped billions from its market value and piled pressure on management. (Reuters)

Things did not improve this week, however, when Credit Suisse reported a worse than expected A quarterly loss of $2.2 billion and warned of a bleak outlook for 2022, when he said earnings would be hit by restructuring costs and wages.

The outlook has further dented its already battered shares, after a year the bank racked up a CHF1.6bn loss following the collapse of $10bn in supply chain finance funds. linked to insolvent British financial firm Greensill and a $5.5 billion hit from the implosion of investment fund Archegos.

Proxy advisor Ethos criticized Credit Suisse’s decision not to publish its investigation into the Greensill case.

“The bank should restore trust with its shareholders and stakeholders by providing transparency on the roots and causes of problems,” Ethos’ Vincent Kaufman said in an email response to Reuters.

Thomas Gottstein, who became chief executive of Credit Suisse in 2020, said after this week’s results he was confident it was well positioned to grow and that risk management was at the “very core of its DNA “.

Credit Suisse declined to comment further.

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Still, investors and analysts are unconvinced, after hearing of a change in the way the bank pays its top workers, coupled with declining business and a bleak outlook.

“They are in a very difficult situation. We have seen the issues with Greensill and other cases ripple through the business, slowing it down,” Andreas Venditti, an analyst at Swiss bank Vontobel, said of the difficult situation. of Credit Suisse.

“At the same time, the bank has to pay more money to keep its staff. Although this may satisfy the staff, the market does not like higher costs. And the outlook is subdued.”

The national flag of Switzerland flies below the logo of Swiss bank Credit Suisse at its headquarters on Paradeplatz square in Zurich on July 31, 2019. (Reuters)

Although Credit Suisse has reduced its bonus pool, it has cushioned the blow to its own bankers by taking the unusual step to pay hundreds of millions in cash up front, while reducing the number of shares it grants them.

Senior bankers, who the bank said had taken a larger share of the bonus cut, received 799 million Swiss francs in cash, up from just 59 million francs in 2020.

“Skeletons in the Closet”

Moody’s raised concerns this week about a drop in money flow to Credit Suisse, warning it could lead to lower revenues and highlighting pressures on wealth management, restructuring costs and higher payouts. to staff.

“We expect 2022 results to be weak,” the credit rating agency said, while Citigroup analysts said it was “difficult to find positives” in the higher earnings. recently, although they see long-term value in Credit Suisse shares.

The bank’s past continues to haunt it, making it more difficult to restore an image essential to the loyalty of a wealthy clientele.

His reputation is once again put to the test during the first criminal trial of a major bank in Switzerlandin which Credit Suisse and a former employee are accused of allowing a suspected Bulgarian cocaine gang to launder millions of euros, some of which were stuffed into suitcases.

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Credit Suisse has denied all allegations, while its employee denies any wrongdoing.

The lawsuit has generated enormous interest in Switzerland and other Credit Suisse representatives are set to testify, under the watchful eyes of investors.

“They have to…make sure they don’t have any more skeletons in the closet,” one analyst, who asked not to be named, said of what Credit Suisse must do now.

“They’ve moved into a position where you don’t give them the benefit of the doubt.”

($1 = 0.9278 Swiss francs)

Robert D. Coleman