What’s happened to Credit Suisse stock?

Credit Suisse stock has slumped on rumours that the bank is in trouble. Is there any truth in this speculation?

Credit Suisse stock has plunged nearly 58% this year as the bank has fought off scandals and reported large losses. And the selloff in the shares has only accelerated in the past week as rumours about the group’s financial health have started to grow online. 

The headwinds hurting Credit Suisse stock 

Credit Suisse is in the middle of a crisis, says Ben Martin in The Times. Executives at the “troubled bank” have failed to allay investors’ fears about its “financial health”.

The problem began last week when worries started to circulate “that the lender could be in trouble”. In response, executives “raced to bolster confidence in the loss-making group” through a series of telephone calls. However, the slide in the Credit Suisse share price, which at one stage reached 12% on Monday, and the rise in the cost of insuring its debt against default (measured by credit default swaps) suggest that “those efforts have fallen short”.

The spike in borrowing costs and the fall in Credit Suisse stock is a little extreme given that “there was no obvious bad news to explain the moves”, says Liam Pound on Breakingviews

What’s more, its managers have a point when they argue that “its liquidity and capital position are strong”. 

After all, as of June, Credit Suisse had a “respectable” common equity Tier 1 capital ratio of 13.5%, as well as CHF232bn of liquid assets, around “the sum of its short-term borrowings and quickly-accessible customer deposits”. As a result, “it would take a very large loss or sudden withdrawal of funding to bring the bank to the brink of failure”.

Credit Suisse’s chequered history

Still, it’s not surprising that investors are developing jitters, says Lex in the Financial Times

Credit Suisse stock definitely “has all the makings of an easy short”. It has had a “chequered history” over the past few years, with losses from the Archegos and Greensill scandals.

There has also been a “revolving door of managers”, with Credit Suisse’s new chief financial officer, Dixit Joshi, starting last Monday. It might be a good idea for CEO Ulrich Körner to “bring forward a promised clean-up”.

Prioritising the strategy announcement is definitely a good idea given that the bank’s third-quarter earnings results, due at the end of this month, are unlikely to be strong enough to reassure investors, says Rochelle Toplensky in The Wall Street Journal. The “broad outlines” – a “scaled-back investment bank and some swingeing cost cuts” – are already known. 

However, investors are unsure whether Credit Suisse “will quickly cut the investment bank, which [is likely to] require raising capital at a painfully low valuation”, or instead “try to self-fund the cull, which would therefore need to be slower and narrower”.

Whatever happens, the recent volatility in Credit Suisse stock and credit-default swaps highlights the “deeply unforgiving” mood of the market, says Ben Marlow in The Daily Telegraph

When a CEO of a major global bank is “drowned out by entirely unfounded speculation on Twitter and internet forums”, some of which came from the account of a YouTube DIY property investor, something has seriously gone wrong. It is clear that in this febrile environment, investors are “looking for any excuse to sell”.

Recommended

Scottish Mortgage managers reassure investors about its recent poor performance
Investment trusts

Scottish Mortgage managers reassure investors about its recent poor performance

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by 40% this year. As its managers address shareholder concern…
5 Dec 2022
State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments
State pensions

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments

LCP launches Mothers Missing Millions campaign amid DWP state pension errors.
3 Dec 2022
The top funds to invest in now
Funds

The top funds to invest in now

As market volatility continues, here are the top funds, stocks and investment trusts investors are putting their money into, according to one investme…
2 Dec 2022
The best places to live in the UK – and how much they will cost you
House prices

The best places to live in the UK – and how much they will cost you

Thinking of moving? Here are the best places to live in the UK and how much they will cost if you are buying.
2 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments
State pensions

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments

LCP launches Mothers Missing Millions campaign amid DWP state pension errors.
3 Dec 2022