A major ratings agency cut the Swiss bank's outlook to negative following a billion-dollar hit in its investment bank. It follows escalating estimates from analysts over the financial damage from hedge fund Archegos.
Shares in the Zurich-based bank continued their steep fall on Tuesday, following a raft of analyst estimates over the wreckage on Archegos, a hedge fund client. Credit Suisse's stock has lost nearly one-quarter of its market value this month alone following twin scandals Greensill supply chain funds and the hedge fund's unwinding leveraged positions.
The most painful of the downgrades is Standard & Poor's, which cut Credit Suisse's outlook to negative from stable, while affirming its A+/A- ratings. Archegos «raises questions about the quality of risk management, the group's risk appetite, and adequacy of the risk return profile,» S&P's Anna Lozmann wrote.
Huge Hit Awaited
Equity analysts parsed the financial damage from Archegos: Berenberg Bank's Eoin Mullany put the hit at between $3 billion and $4 billion – an estimate shared by colleagues at J.P Morgan. Credit Suisse is likely to have to halt its ongoing 1.5 billion Swiss franc ($1.6 billion) share buyback, Mullany said, as did Citi analyst Andrew Coombs.
Goldman Sachs' Jernej Omahen wrote that Credit Suisse is likely to fundamentally review parts of its operations, and that incidents like Archegos typically mark a move towards reducing risk appetite, raising the bar on new business, and on restructuring. The analyst said he is cutting his estimates for profit this year by 20 percent for every billion written off due to the issue.
