Credit Suisse Group AG's senior unsecured debt ratings affirmed at Baa1 and outlook changed to negative
London, May 19, 2022 -- Moody's Investors Service ("Moody's") today affirmed the long-term senior unsecured debt and deposit ratings of Credit Suisse AG (CS) at A1 and changed the outlook to negative from stable. At the same time, the rating agency affirmed the Baa1 senior unsecured debt ratings of Credit Suisse Group AG and changed the outlook to negative from stable.
The rating agency affirmed CS's Baseline Credit Assessment (BCA) and Adjusted BCA at baa2 and its long-term Counterparty Risk Assessment at A1(cr). The long-term senior unsecured debt, issuer as well as deposit ratings of all of CS's subsidiaries - where applicable - have also been affirmed while the outlooks have been changed to negative from stable.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL465906 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
--- AFFIRMATION OF THE BCA AND LONG-TERM RATINGS
The affirmation of CS's BCA, as well as its long-term ratings, reflects Moody's updated view on CS's credit profile as well as unchanged support for creditors under Moody's Advanced Loss Given Failure (Advanced LGF) analysis, which is applied to banks operating in jurisdictions with Operational Resolution Regimes.
The affirmation of CS's ratings reflect Moody's view of the firm's solid capitalisation and strong liquidity and funding profiles, which help to mitigate: (1) the complexity of the ongoing organizational and cultural remediation required following the Greensill and Archegos events, and the improvement of risk management and compliance processes and frameworks, which will take time to embed; (2) strain on the bank's financial profile during the ongoing remediation, resulting in reduced profitability and lower ability to generate capital; and (3) the potential for client defections and franchise impairment from the ongoing reputational effects of these events.
Moody's considers weaknesses in CS's governance, compliance and risk frameworks and controls, which have led to financial and reputational losses, as well as the above referenced events as a governance factors under its environmental, social, and governance (ESG) framework. Moody's has reflected such governance deficiencies, despite ongoing remediation efforts which will take time to embed, in CS's highly negative Governance Issuer Profile Score (G-4). CS' ESG Credit Impact Score is highly negative (CIS-4) whereby particularly its governance risks have a discernible negative impact on current ratings.
Moody's expects CS's new 2024 strategy plan, once executed, to enable CS to achieve growth with lower risk and earnings volatility, leading to a leaner and more stable business model. The plan aims at reducing capital allocated to the Investment Bank by exiting the Prime brokerage business and around ten non-core global trading solutions (GTS) markets and redeploying additional capital to Wealth Management, simplifying its structure and investing for growth. At the same time, leadership changes for both risk and compliance and related reinforcement of risk frameworks, risk appetite and allocation of responsibilities between the first and second lines of defense, albeit deemed necessary, will take time to embed and to deliver the desired cultural change.
The full financial and reputational implications of the Greensill and Archegos events for CS remain unclear and the extent and effectiveness of the announced remediation measures will remain uncertain for some time and will continue to consume a significant amount of management and employees' resources constraining the bank's ability to swiftly return to profitability levels in line with its peers. In addition, intentional exits from products and a more focused approach to the allocation of risk appetite and desired sustainable returns on capital will mean that some market share erosion in capital markets and investment banking will not be reversed, at least in the short to medium term.
The uncertainties regarding the bank's ability to successfully execute on the announced strategy as well as the governance deficiencies exposed by the Greensill and Archegos events are captured by a one-notch downward adjustment for Corporate Behavior in CS's scorecard, leading to an unchanged positioning of the BCA at the high-end of the possible range.
--- AFFIRMATION OF GROUP-LEVEL SENIOR UNSECURED DEBT RATINGS AND AFFIRMATION OF SUBORDINATED RATINGS
The affirmation of Credit Suisse Group AG's ratings reflects the affirmation of the ratings of its major subsidiary, Credit Suisse AG, as well as unchanged support for creditors under Moody's Advanced LGF framework.
--- NEGATIVE OUTLOOK
The negative outlook on CS's senior unsecured debt, long-term issuer and deposit ratings reflects Moody's view of i) weaker than-expected recent financial results, and Moody's revised-down expectation of weak profitability in 2022 - due to high legacy litigation provisions and revenue contraction across the Wealth Management and Investment Bank divisions -, and an expectation for subdued profitability in 2023; ii) potential client defections and franchise impairments, from the possible reputational effects of Greensill on the Investment Bank and Wealth Management businesses; iii) management instability and a potential for delay in the implementation of the announced strategic plan, due to substantial overhaul of the top management team as well as significant changes at the level of the Board of Directors.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
There is little prospect of higher ratings in the near- to medium-term, as indicated by the positioning of the BCA at the high-end of the scorecard range and the negative outlook on the senior ratings.
The long-term ratings could be affirmed and the outlook stabilized if CS: (1) demonstrates that it has fully addressed and remediated the significant corporate governance, risk, audit or compliance control shortcomings relating to the financial and reputational losses incurred in relation to its failed hedge fund client and Greensill exposures; (2) achieves a sustainable improvement in its profitability to well above its communicated targets; (3) successfully manages its risk appetite in its Investment Bank and adjacent segments, in particular with regard to leveraged lending and other non-investment-grade exposures; (4) successfully increases the share of revenue, profits generated from and resources allocated to its more stable Wealth Management and Swiss Bank businesses while preserving revenue in its Investment Bank; (5) maintains its solid capital position and liquidity and overall franchise during the strategic plan period. An upgrade is conditional to a stabilization of the Board and Executive team and Moody's confidence that the previously announced strategy would be progressed and achieved.
The ratings could be downgraded if (1) CS suffers sustained client or franchise impairment in particular in its Wealth Management or Investment Bank divisions, leading to revenue attrition and subdued levels of profitability; (2) management changes lead to a period of instability and a delay in the implementation of the announced strategic plan; (3) existing legacy litigations crystallise into large unexpected losses negatively impacting the already low profitability; (4) the capital position consistently remains below the stated Common Equity Tier 1 target of around 14%; (5) announced enhancements of the bank's risk appetite, risk and compliance awareness and their related risk control and governance frameworks are not implemented swiftly and internal or external findings do not get remediated in full; or (6) any new shortcomings in the bank's risk control or awareness, audit, compliance or governance frameworks become evident and are not fully addressed in a timely manner.
The ratings could further be downgraded should there be a significant and larger-than-anticipated decrease in the bank's existing stock of loss-absorbing liabilities. Although regarded highly unlikely at present, this may lead to fewer notches of rating uplift as a result of Moody's Advanced LGF analysis.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1269625. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited and unsolicited credit ratings. For additional information, please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL465906 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:
• EU Endorsement Status
• UK Endorsement Status
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Alessandro Roccati
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Laurie Mayers
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
