Credit Suisse shares hit pain threshold

The major Swiss bank’s share price falls on negative news. And the guessing game begins.

Same Oswald J. Grübel makes timing errors. Earlier this year, the German dean of the Swiss bank said Credit Suisse shares were a buy when they were just above 9 Swiss francs. After news broke of the massive data breach on Sunday, the bank’s shares sometimes fell below 8 francs, their lowest level in three years.

Hits “Bad News”

The bank is stuck between the headlines. It wasn’t until February that she reported an annual loss as she defended herself in a federal money laundering lawsuit. Today, he is accused of financing corrupt government leaders and criminals. What is noticeable in all this is that each new negative information seems to have a direct impact on its share price. Even though most observers, including former CEO Grübel, agree that their price is cheap.

And how. Current estimates seem to indicate that it is trading at around half of its intrinsic value. Director of Credit Suisse Thomas Gotsteinin a recent interview, seemed almost to implore the “Finanz and Wirtschaft” newspaper (paid wall) that the securities of “his” bank were undervalued.

falling knife

“Fear is a bad advisor,” the CEO of Credit Suisse said during the interview. But traders seem to be staying clear of an obvious knife drop. Leaving one question hanging – how low can the share price go before another round of drastic action is needed?

Many fear a new capital increase, which could be the last straw that would break the patience of the main shareholders of Credit Suisse.

Lars Jakob Selsas, equity analyst at Zürcher Fonds-BWM Boutique, does not see the urgency of joining Credit Suisse. BWM sold its stake last March after value investing experts held onto them during the years-long drought. “The risks relative to the potential for expected benefits have become too great for us,” Selsås said.

How much does Greensill cost?

There must be fundamentally positive news for there to be buying, the expert said. But “the negative headlines linked to Credit Suisse do not stop”. Investors also had to recognize that each security exerted pressure on the share price and its intrinsic value. The Archegos debacle in March 2021 cost over $1.50 in book value, he calculated. “Issue of the Greensill fund could still cost the bank billions,” he warned.

It is also unclear how the recent reputational damage will affect Credit Suisse’s operational activities. In 2021, it not only suffered a loss, but growth slowed in the fourth quarter as net new assets fell to a trickle.

Fight the fires

Will any further reporting of “Suisse Secrets” drive customers away? For some observers, recent developments in wealth management seem closely linked to its notoriety. “Reputation is hard to quantify,” Selsås said. The pressure on the bank’s shares is almost a given due to the many fires the bank is trying to put out.

The situation has not yet changed much. Capital and leverage quotas benefit from the directive of the Swiss Financial Market Supervisory Authority (Finma) to reduce risky positions. Its CET1 ratio was 14.4%, well above the necessary limits.

Small Buffer

But the bank has less margin than people think, says the BWM expert. “14% CET1 is like the minimum you can expect from one of the main Swiss banks.”

Bank chief Gottstein said in February that this year would be a year of transition. If Credit Suisse continues to suffer setbacks like it has, this statement might mean nothing.