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Moody's Upgrades Credit Suisse Rating to A1, Outlook Stable
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Credit Suisse Group AG’s long-term rating has been upgraded to A1 by Moody’s Investors Service. This includes the senior unsecured debt ratings of the group's main operating entity, Credit Suisse AG. Further, the company’s senior program ratings were upgraded to (P)Baa2 from (P)Baa3.
The rating agency also upgraded the guaranteed long-term debt ratings of Credit Suisse Group Funding (Guernsey) Limited by a notch to Baa2.
The company’s baa2 standalone credit assessment (BCA), A1 (cr)-Prime-1(cr) Counterparty Risk Assessments, and other long and short-term ratings remained unchanged.
The rating firm’s outlook for the parent holding company and the main operating company remains “stable”.
Why the Upgrade?
The rating upgrade was prompted by changes in the group’s liability structure, whereby the senior unsecured debt level of the group’s parent holding company was increased, in addition to the planned issuance in future. This will enable the company to provide additional loss absorption facility to bondholders in an event of failure.
Further, the evaluation is based on Moody's advanced loss given failure (LGF) analysis that considers the group's balance sheet position at the end of Sep 2016, the senior unsecured issuance made and Moody's expectation of additional issuance in the near term. This results into an extra notch of LGF uplift in the related ratings.
The A1 rating of the Credit Suisse AG’s senior unsecured includes the addition of three notches of uplift, reflecting its exceedingly low LGF. Additionally, it also incorporates one notch of uplift, highlighting a modest possibility of government support.
The senior unsecured rating for the holding company is rated at the bank's baseline credit assessment (BCA), highlighting its moderate LGF. Moody’s believes that the company has a small chance of obtaining support from the government in case of need and, thus, will not gain from any uplift resulting from government support.
Also, as required under the Swiss banks’ “Too-Big-To-Fail” regulation, the company has built CHF 22.7 billion of Gone-Concern capital so far, with CHF 26 billion of loss-absorbing capital remaining under the Total Loss Absorbing Capacity (TLAC), set by the Swiss Financial Market Supervisory Authority (FINMA). This will be issued by Jan 1, 2020, to meet end-state requirements. Notably, management estimates issuance of CHF 10–12 billion in senior holding company in 2017.
In addition, the rating firm believes that Credit Suisse’s performance related to its restructuring efforts is in line with the current baa2 BCA, reflecting a balance between future profitability and execution challenges. Moody’s anticipates that this could result in a higher rating, if the bank is able to achieve a significant and sustainable level of profitability resulting from successful restructuring exercises.
However, Moody’s remains apprehensive owing to the current state of the company’s business, which is presently in the trough of restructuring efforts, resulting in poor profitability. Further, it projects that the company’s business will continue to be strained by the disposal of non-core assets held in Strategic Resolution division.
Credit Suisse’s stock currently carries a Zacks Rank #4 (Sell). The company’s stock has underperformed the 7.4% growth for the Zacks categorized Foreign Banks industry since the beginning of the year.
All the above three stocks have delivered an average positive earnings surprise for the trailing four quarters.
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Moody's Upgrades Credit Suisse Rating to A1, Outlook Stable
Credit Suisse Group AG’s long-term rating has been upgraded to A1 by Moody’s Investors Service. This includes the senior unsecured debt ratings of the group's main operating entity, Credit Suisse AG. Further, the company’s senior program ratings were upgraded to (P)Baa2 from (P)Baa3.
The rating agency also upgraded the guaranteed long-term debt ratings of Credit Suisse Group Funding (Guernsey) Limited by a notch to Baa2.
The company’s baa2 standalone credit assessment (BCA), A1 (cr)-Prime-1(cr) Counterparty Risk Assessments, and other long and short-term ratings remained unchanged.
The rating firm’s outlook for the parent holding company and the main operating company remains “stable”.
Why the Upgrade?
The rating upgrade was prompted by changes in the group’s liability structure, whereby the senior unsecured debt level of the group’s parent holding company was increased, in addition to the planned issuance in future. This will enable the company to provide additional loss absorption facility to bondholders in an event of failure.
Further, the evaluation is based on Moody's advanced loss given failure (LGF) analysis that considers the group's balance sheet position at the end of Sep 2016, the senior unsecured issuance made and Moody's expectation of additional issuance in the near term. This results into an extra notch of LGF uplift in the related ratings.
The A1 rating of the Credit Suisse AG’s senior unsecured includes the addition of three notches of uplift, reflecting its exceedingly low LGF. Additionally, it also incorporates one notch of uplift, highlighting a modest possibility of government support.
The senior unsecured rating for the holding company is rated at the bank's baseline credit assessment (BCA), highlighting its moderate LGF. Moody’s believes that the company has a small chance of obtaining support from the government in case of need and, thus, will not gain from any uplift resulting from government support.
Also, as required under the Swiss banks’ “Too-Big-To-Fail” regulation, the company has built CHF 22.7 billion of Gone-Concern capital so far, with CHF 26 billion of loss-absorbing capital remaining under the Total Loss Absorbing Capacity (TLAC), set by the Swiss Financial Market Supervisory Authority (FINMA). This will be issued by Jan 1, 2020, to meet end-state requirements. Notably, management estimates issuance of CHF 10–12 billion in senior holding company in 2017.
In addition, the rating firm believes that Credit Suisse’s performance related to its restructuring efforts is in line with the current baa2 BCA, reflecting a balance between future profitability and execution challenges. Moody’s anticipates that this could result in a higher rating, if the bank is able to achieve a significant and sustainable level of profitability resulting from successful restructuring exercises.
However, Moody’s remains apprehensive owing to the current state of the company’s business, which is presently in the trough of restructuring efforts, resulting in poor profitability. Further, it projects that the company’s business will continue to be strained by the disposal of non-core assets held in Strategic Resolution division.
Credit Suisse’s stock currently carries a Zacks Rank #4 (Sell). The company’s stock has underperformed the 7.4% growth for the Zacks categorized Foreign Banks industry since the beginning of the year.
Some better-ranked stocks in the same space include Banco de Chile (BCH - Free Report) , sporting a Zacks Rank #1 (Strong Buy), Itau Unibanco Holding S.A. (ITUB - Free Report) and Banco Santander (Brasil) S.A. (BSBR - Free Report) , both holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
All the above three stocks have delivered an average positive earnings surprise for the trailing four quarters.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>