(Bloomberg) — Credit Suisse Group AG’s funding costs have become so high that it either needs to raise more capital or face a breakup, Morningstar analyst Johann Scholtz said in a note Wednesday.
Read the most from Bloomberg
“We expect 2023 losses to increase to such an extent that its capital adequacy could be at risk,” Scholz wrote in the note. We believe Credit Suisse needs another rights issue.
The alternative would be a “breakup” of the bank in which various business lines such as the Swiss unit, asset manager and wealth management divisions could be “sold or listed separately”.
Credit Suisse has sufficient liquidity to handle the outflow of deposits and should also be able to obtain emergency liquidity by borrowing against its bond portfolio from the Swiss National Bank, Scholz wrote in the note. “However, it does not solve Credit Suisse’s profitability challenge, nor does it address capital concerns.”
Credit Suisse stock plunged as much as 30.8% on Wednesday to the lowest level on record, while some of its bonds plunged to levels that signal financial distress as the company’s top shareholder refused to increase his stake due to regulatory hurdles. Refused. The plunge helped drag down all European lenders as investors were quick to move away from banking risk following the turmoil prompted by the collapse of California-based Silicon Valley Bank.
The Swiss lender’s Chief Executive Officer Ulrich Körner preached patience on Tuesday and said the bank’s financial condition was sound, while Chairman Axel Lehman said on Wednesday that government aid was “not an issue.” He also said it would be unfair to compare Credit Suisse’s efforts to return to profitability with the recent collapse of Silicon Valley Bank.
Read more: Credit Suisse lights up global markets as banking fears return
Read the most from Bloomberg Businessweek
©2023 Bloomberg L.P.