Credit Suisse’s rating cut to one level above junk status by S&P

Credit Suisse Group AG’s long-term rating was downgraded by S&P Global Ratings to just one level above junk status, underscoring the bank’s challenges after it laid out a radical restructuring plan last week.

The Swiss bank’s long-term rating was cut to BBB- from BBB, with a stable outlook. That’s just one notch above the BB “speculative grade.” The US ratings firm, echoing several analysts after the restructuring was announced, said it sees “material execution risks amid a deteriorating and volatile economic and market environment.” It also signaled that some details around asset sales remain “unclear.”

Credit Suisse’s new strategy triggered the biggest single-day decline on record on the day, with shares tumbling 18%, as investors weighed the high costs of the plan, the modest return predictions and the significant dilution. The strategic review came as the bank posted a quarterly loss of 4.03 billion Swiss francs, including a large impairment of deferred tax assets related to the revamp. The restructuring will see the investment bank broken up and will cost about 2.9 billion francs ($2.9 billion) through 2024.

“Credit Suisse’s third-quarter earnings pointed to a weakened franchise as its leading wealth management business proved less resilient than previously anticipated, demonstrated by client money outflows and an inflexible cost base,” S&P said in a statement.

Earlier this year, S&P had affirmed Credit Suisse’s long-term rating at BBB, citing the group’s commitment to strong capital, although the outlook remained negative amid uncertainties about the revised strategy.

The new downgrade means Credit Suisse has the worst credit rating from S&P among all major investment banks, creating a structural disadvantage as lower ratings usually translate into higher funding costs.

—Bloomberg