Moody's says Credit Suisse could suffer $3 billion loss in 2022

© Reuters. FILE PHOTO: The logo of Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland October 4, 2022. REUTERS/Arnd Wiegmann/File Photo

By Saeed Azhar

NEW YORK (Reuters) - Rating agency Moody's (NYSE:MCO) Investors Service expects losses for Credit Suisse to swell to $3 billion by year-end, potentially bringing its core capital below the key 13% level, Moody's lead analyst on the bank told Reuters.

Credit Suisse has reported 1.9 billion francs ($1.92 billion) of losses in the first half of the year. In July, the bank said it expected to operate with a common equity tier 1 (CET1) ratio of between 13% and 14% for the rest of 2022.

"We are forecasting further losses in the second half of the year," said Alessandro Roccati, senior vice president in the financial institutions group of the rating agency. "We're looking at $3 billion losses for the full year, which means the CET1 is going to be slightly below 13%."

If the core capital ratio stays "consistently" below 13% it would be "credit negative" for the bank, Roccati said in an interview.

The Swiss lender has been battered by scandals and losses and is racing through a restructuring plan under new Chief Executive Ulrich Koerner. Wild market swings and a social media storm are making it increasingly difficult for the bank to stem losses and regain its footing. Moody's downgraded its rating on Credit Suisse in August and has since kept its negative outlook. The downgrade reflected how difficult it will be for Credit Suisse to reposition its investment bank amid slowing economic growth and bumpy markets. Earlier Thursday, S&P Global (NYSE:SPGI) affirmed its rating and said the outlook remains negative for the bank."The current market environment is not supportive of restructuring and is not supportive of Credit Suisse's current capital market business model," Roccati said. "Deteriorating market conditions have affected the potential realisation value of businesses they were considering to sell."

In July, Credit Suisse announced its second strategy review in a year and replaced its chief executive, bringing in restructuring expert Koerner to prune its investment banking arm and cut more than $1 billion in costs. The bank is considering measures to scale back its investment bank into a "capital-light, advisory-led" business, and is evaluating a sale of its securitised products business.

Credit Suisse's U.S. businesses focusing on structured products and leveraged finance previously generated big profits because of low interest rates, but those fortunes have now changed. "Now clearly, interest rates are significantly increased. And the credit conditions are not benign anymore." "The kind of business model, which is in any case geared towards sort of high yield products and complex products, is not a business which will deliver strong profits."

Credit Suisse suffered billions in losses last year, including a $5.5 billion hit from the default of U.S. family office Archegos Capital Management and the shuttering of $10 billion of supply chain finance funds linked to collapsed British financier Greensill.

The bank faces big hurdles for potential asset sales, Roccati said.

"Given the jittery markets in the last couple of months, and the decrease in asset prices, that strategy is probably unattainable," he said.

($1 = 0.9892 Swiss francs)