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Credit Suisse (CS) & Nomura (NMR) Outlook Downgraded by Moody's
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Moody's Investors Service has lowered the outlook of both Credit Suisse Group AG and Nomura Holdings, Inc. (NMR - Free Report) to negative from stable. The rating agency took this action as a result of potential deficiencies in the companies’ risk management processes.
Nonetheless, Moody’s affirmed the ratings of both companies. The ratings agency has maintained Credit Suisse Group’s senior unsecured debt ratings at Baa1, and long-term senior unsecured debt and deposit ratings of its principal bank subsidiary, Credit Suisse AG , at Aa3.
Nomura Holdings’ long-term issuer and senior unsecured debt ratings have been affirmed at Baa1. Further, Nomura Securities Co., Ltd.’ s issuer ratings of A3 and the senior unsecured debt ratings of Nomura America Finance, LLC of Baa1 has remained unchanged.
Reasons for the Outlook Downgrade
The ratings agency believes that Credit Suisse Group’s potential deficiencies in audit, compliance or governance control processes and frameworks, combined with its poor risk management, compared with the bank’s peers are a concern. The failure of the U.S. hedge fund and the sudden collapse of the supply-chain finance group, Greensill Capital, have only largely highlighted this issue further. These are expected to erode the company’s profitability, capital position and mar its financial profile.
Though Moody’s anticipates that Credit Suisse will enhance its governance and risk management practices, the extent and effectiveness of these measures look uncertain. Moreover, this will involve a significant amount of bank resources and managerial focus.
Per Moody’s, Nomura’s weaker risk management process relative to most peers, coupled with the challenges faced while improving and stabilizing its profit, particularly in the company’s international wholesale business, might significantly narrow the profitability gap.
Rationale Behind Ratings Affirmations
Credit Suisse’s potential to improve profits and its low operating costs have supported baa1 ratings for the company’s BCA. The strengths include a solid funding position and a robust liquidity. On the downside, BCA incorporates the company’s U.S. hedge fund loss, which raises speculation about Credit Suisse’s exposure concentration management.
While solid financial performance and strong capitalization have supported Nomura’s Baa1 ratings, its exposure to large complex transactions without sufficient risk mitigants has been denting the company’s profit.
Price Performance & Zacks Rank
Over the past six months, shares of Credit Suisse and Nomura Holdings have gained 5.2% and 17.5%, respectively.
Over the past few months, Moody’s has affirmed the ratings for several finance companies, including First Republic Bank and Jefferies Financial Group (JEF - Free Report) . Further, the rating agency maintained the stable outlook for First Republic Bank, while the outlook for Jefferies Financial has been upgraded to positive from stable.
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Credit Suisse (CS) & Nomura (NMR) Outlook Downgraded by Moody's
Moody's Investors Service has lowered the outlook of both Credit Suisse Group AG and Nomura Holdings, Inc. (NMR - Free Report) to negative from stable. The rating agency took this action as a result of potential deficiencies in the companies’ risk management processes.
Nonetheless, Moody’s affirmed the ratings of both companies. The ratings agency has maintained Credit Suisse Group’s senior unsecured debt ratings at Baa1, and long-term senior unsecured debt and deposit ratings of its principal bank subsidiary, Credit Suisse AG , at Aa3.
Nomura Holdings’ long-term issuer and senior unsecured debt ratings have been affirmed at Baa1. Further, Nomura Securities Co., Ltd.’ s issuer ratings of A3 and the senior unsecured debt ratings of Nomura America Finance, LLC of Baa1 has remained unchanged.
Reasons for the Outlook Downgrade
The ratings agency believes that Credit Suisse Group’s potential deficiencies in audit, compliance or governance control processes and frameworks, combined with its poor risk management, compared with the bank’s peers are a concern. The failure of the U.S. hedge fund and the sudden collapse of the supply-chain finance group, Greensill Capital, have only largely highlighted this issue further. These are expected to erode the company’s profitability, capital position and mar its financial profile.
Though Moody’s anticipates that Credit Suisse will enhance its governance and risk management practices, the extent and effectiveness of these measures look uncertain. Moreover, this will involve a significant amount of bank resources and managerial focus.
Per Moody’s, Nomura’s weaker risk management process relative to most peers, coupled with the challenges faced while improving and stabilizing its profit, particularly in the company’s international wholesale business, might significantly narrow the profitability gap.
Rationale Behind Ratings Affirmations
Credit Suisse’s potential to improve profits and its low operating costs have supported baa1 ratings for the company’s BCA. The strengths include a solid funding position and a robust liquidity. On the downside, BCA incorporates the company’s U.S. hedge fund loss, which raises speculation about Credit Suisse’s exposure concentration management.
While solid financial performance and strong capitalization have supported Nomura’s Baa1 ratings, its exposure to large complex transactions without sufficient risk mitigants has been denting the company’s profit.
Price Performance & Zacks Rank
Over the past six months, shares of Credit Suisse and Nomura Holdings have gained 5.2% and 17.5%, respectively.
Both Credit Suisse Group & Nomura Holdings currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Action by Moody’s on Other Finance Stocks
Over the past few months, Moody’s has affirmed the ratings for several finance companies, including First Republic Bank and Jefferies Financial Group (JEF - Free Report) . Further, the rating agency maintained the stable outlook for First Republic Bank, while the outlook for Jefferies Financial has been upgraded to positive from stable.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 77 billion devices by 2025, creating a $1.3 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 4 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2022.
Click here for the 4 trades >>