Moody's Investors Service, a rating arm of Moody's Corporation MCO, has affirmed the debt and deposit ratings of Credit Suisse Group AG CS and subsidiaries. The Swiss bank's senior unsecured debt ratings have been affirmed at Baa2 and long-term senior unsecured debt and deposit ratings of its principal bank subsidiary, Credit Suisse AG has been maintained at A1.
Credit Suisse AG's Baseline Credit Assessment (BCA) at baa2, adjusted BCA at baa2 and Counterparty Risk Assessment at A1(cr)/P-1(cr), along with its other long- and short-term ratings, have been affirmed. The rating agency has also maintained the senior unsecured debt, issuer as well as deposit ratings of all of Credit Suisse's subsidiaries.
However, the rating agency’s outlook for the bank has been revised to “positive” from “stable”.
Rationale Behind the Affirmation
The rating affirmation follows Credit Suisse's strong capital and liquidity position, along with its pro-active approach to manage risks. Notably, such fundamentals help the bank reduce risks associated with its capital-market activities, including wholesale funding sensitivities.
Additionally, steady earnings, lower risk profile of global wealth management franchise of Credit Suisse and revenue performance of well-established domestic Swiss banking franchise post restructuring supports ratings affirmation. Moreover, the bank’s potential with its integrated business model to manage earnings performance in a highly adverse market environment, despite higher reliance on transaction-driven capital-market revenues drove Moody’s to affirm ratings.
"In its first year post its restructuring, Credit Suisse has demonstrated earnings resilience in a more challenging macroeconomic environment negatively affecting its primary capital markets activities. However, the bank's structurally reduced cost base has sustainably lowered its break-even point, making it more resilient to external market pressures," said Michael Rohr, senior vice president at Moody's. "Credit Suisse's profitability is expected to recover further and be sustained at a level commensurate with higher-rated peers over time, supporting the positive outlook. Following the completion of its restructuring, Moody's now expects sustained capital generation through earnings and maintenance of a strong liquidity position to provide protection to bondholders," he added.
Further, Moody's assessment for Credit Suisse related to the volume of loss-absorbing debt under its Advanced Loss Given Failure (LGF) analysis and government support prospects has not changed. Moreover, the rating agency has no concerns related to the bank’s corporate governance, though will continue to monitor the same on an ongoing basis.
Outlook Upped to Positive
The outlook revision commensurate with Moody's expectation on Credit Suisse’s capability to maintain its improved and more stable profitability, driven by lower non-recurring charges and reduced funding costs, along with cost management in the capital-market operations. Furthermore, Moody's upgrade in ratings outlook reflects the bank’s successful execution of its restructuring plan, including significant de-risking of balance sheet, resolve of major outstanding litigation issues and reinstating profitability mainly in capital markets-oriented business units.
Moreover, the bank's liquidity and funding profile reflected by peer-leading liquidity coverage ratio (LCR), and an above-average maturity profile of its market funding support the upgrade in ratings outlook.
The rating outlook is valuable for firms since these preserve investors’ confidence in the stock and boost its creditworthiness in the market. Also, an upgrade in the same increases investors’ confidence and reflects the company’s strong financials.
Credit Suisse currently carries a Zacks Rank #4 (Sell). The company’s shares (up 20.7%) have outperformed 3.4% growth registered by the industry since the beginning of the year.
Stocks to Consider
Barclays PLC BCS has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #2 Ranked (Buy) stock has rallied more than 15% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Canadian Imperial Bank of Commerce CM has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 16.2% year to date. At present, it carries a Zacks Rank of 2.
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