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 in Zurich
Credit Suisse may have to raise capital at a “painfully low valuation”
(Image credit: © Ulrich Baumgarten via Getty Images)

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”.

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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”.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri