A general view of Credit Suisse offices in the Canary Wharf business district on Apr. 6, 2021 in London, England.
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After the brutal losses suffered by Credit Suisse in wake of its revelation it’s lost nearly $5 billion on the margin call at family office Archegos, the stock has to look tempting.
But even at 0.6 times tangible book value and a 30% valuation discount to rival UBS, the stock isn’t yet worth the risk, according to Morgan Stanley analysts led by Magdalena Stoklosa, who downgraded their rating to equal-weight from overweight. The analysts lowered their price target to 11 francs ($11.89) from 14 francs.
Credit Suisse has suffered more market-cap losses, some 5.8 billion francs, than the 4.4 billion franc hit it’s announced over Archegos. The Swiss bank said its pretax loss for the quarter will only be about 900 million francs, owing to a strong first quarter outside of its prime brokerage business, helped by capital markets activity as well as its asset management businesses.
But there are still questions surrounding the bank. The investment bank division, now led by Christian Meissner, is likely to undergo a significant strategic rethink, the analysts say.
There is also the possibility that losses from Archegos may affect the second-quarter results.
There is a planned update on the roll off of funds tied to Greensill, which had $10 billion in assets before their suspension. The analysts say investors may take a $1 billion to $2 billion loss, and it isn’t clear whether Credit Suisse will share any of this burden. During the 2008 financial crisis, they note, multiple funds reimbursed clients invested in money-market funds. “Reputation and wider implications for the franchise could also be a consideration,” they say.
The asset management business may undergo some realignment, and the bank has previously said it wants to be less reliant on partnerships and stakes.
The Morgan Stanley analysts cut their earnings per share forecasts for 2022 and 2023 by 17%, as they removed stock buybacks and reduced revenue in divisions affected by the recent losses.
