MOODY'S CHANGES BACK TO STABLE FROM NEGATIVE THE OUTLOOK FOR THE LONG-TERM RATINGS OF CREDIT SUISSE GROUP AND ITS SUBSIDIARIES (SENIOR AT Aa3)
Moody’s Investors Service changed back to stable from negative the outlook for the Aa3 senior debt ratings of Credit Suisse Group, the Aa3 long-term deposit and senior debt ratings of Credit Suisse and Credit Suisse First Boston (CSFB), and the A1 Insurance Financial Strength Rating (IFSR) of Winterthur Insurance. The outlooks for both the B financial strength rating of Credit Suisse and the C financial strength rating of CSFB remain stable. According to Moody’s, the rating outlook change reflects the favorable evolution of the group’s various businesses in recent quarters, leading to a return to better levels of sustainable operating profitability, notably at the legal entities CSFB and Winterthur – which had raised more concerns in the past.
Credit Suisse Group continues to benefit from large and solid client franchises which have enabled it to return to profitability after sustaining massive losses at Winterthur during last year. In particular, Moody’s said that it views the group’s private banking business as a core strength – as Credit Suisse Private Banking remains one of the leading players worldwide. Despite some loss of funds from the first Italian tax amnesty as well as in the wake of the publication of Winterthur’s massive investment loss and the ensuing negative publicity, the private bank broadly maintained a positive net new money stream through difficult equity markets – a strong rating element considering its standing and aspirations in global wealth management – owing to a solid brand reputation and a track record of product performance and innovation. The main challenge for Credit Suisse Private Banking – as for a number of global players in this industry – is penetrating the onshore savings of high net worth European individuals which remain today the stamping ground of national incumbents. While Credit Suisse Private Banking should be able to draw on its recognized capabilities to attract new onshore clients in Europe, Moody’s said that it will look for these operations to demonstrate their contributive capacity.
Moody’s added that the group's Swiss commercial banking operations are characterized by significant market shares across core products. As the second largest commercial bank in Switzerland, Credit Suisse enjoys some pricing power and is well-positioned to capture business volumes. In common with many European banks, Credit Suisse has seen sustained mortgage financing inflows in a context of falling interest rates. The rating agency added that, although the commercial bank already posts a relatively good operating efficiency, further raising productivity remains key to maintaining operating profitability across the economic cycle in the mature and saturated Swiss banking market. Moody’s noted that expenses have been trending down in toe with a reduction in staff numbers, mainly in the support functions, and continuing technological substitution. The rating agency remarked that another important parameter is maintaining credit expenses at a low level. In this respect, the focus on mortgage lending in recent times combined with greater credit risk sensitivity in loan pricing are positive from an asset-quality standpoint.
With respect to the insurance company Winterthur, Moody’s said that, in the wake of large asset divestitures, the company is now increasingly focusing on retail clients, mainly in Switzerland and in Germany, where it has critical masse. As such, the company has materially strengthened its solvency and lowered its risk profile. The main challenge for Winterthur is in continuing to improve and maintain its underwriting profitability through continuing productivity gains as well as more appropriate risk pricing, particularly in the life segment where large guarantees have historically prevailed. The rating agency said that Winterthur has however been recently reducing its underwriting risk through substantial premium rate increases and selective renewals to the life insurance portfolio. Importantly, Moody’s commented that the potential volatility of the investment income has been reduced in parallel with the proportion of equities in Winterthur’s portfolio. Moody’s also views positively management’s decision to more closely match asset and liabilities, especially in the life segment. Overall, Winterthur’s A1 IFSR reflects these strengths, as well as the continued benefits derived as being a part of the Credit Suisse Group.
Despite large-scale personnel reductions, the investment bank CSFB has preserved its client franchises and retained its top-tier positions in several key investment banking categories. Operating expenses have tumbled down owing to substantial staff cuts and the near complete amortization of the retention payments related to the acquisition in 2000 of the US broker dealer DLJ. The reduction of the guaranteed portion of the incentive-based compensation affords CSFB much greater financial flexibility. Also positive, CSFB has significantly lowered its risk profile, a development which is visible with respect to both credit and market risk indicators. "Legacy" items – non-core assets of which CSFB is divesting with respect to real estate, distressed debt and private equity – were sharply marked down last year and no longer weigh on net profit. Moody's said that it views CSFB as better positioned to deliver a financial performance which is more comparable with peers.
Credit Suisse Group has its headquarters in Zurich, Switzerland. At end-September 2003, the group posted total assets of CHF994.5 billion (EUR634 billion or USD737.5 billion).
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