DBRS Ratings Limited (DBRS) confirmed the Long-Term Issuer Rating of Credit Suisse AG (the Bank) at A and the Long-Term Issuer Rating of Credit Suisse Group AG (Credit Suisse, CSG or the Group), the top-level holding company at A (low). The Bank’s and CSG’s R-1 (low) Short-Term Issuer ratings were also confirmed. The trend on all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is ‘A’, and the Support Assessment is SA1. The Group’s Support Assessment is SA3. See the full list of ratings in the table at the end of this press release.
KEY RATING CONSIDERATIONS
Credit Suisse’s ratings reflect the Group’s leading franchise in private wealth management globally, its strong funding and liquidity profile and its solid capital position. The ratings also consider the progress achieved in the last three years towards restructuring, with significant reduction of operating costs and a successful run down of non-core assets. Following these restructuring measures, earnings generation has improved but profitability remains modest and the Group still has an elevated cost/income ratio. DBRS considers asset quality as strong, with the ratings considering the Group’s positioning in certain potentially higher risk businesses and geographies.
CSG’s Long-Term Issuer Rating is positioned one notch below the Bank’s IA reflecting the structural subordination of the holding company.
Upward rating pressure would require continued progress in successfully executing a consistent strategy while maintaining a strong risk profile. In particular, positive ratings momentum could arise from an improvement in profitability, efficiency and capital generation through improving retained earnings.
Negative rating pressure would arise if there is any evidence that Credit Suisse’s risk profile is being negatively impacted by the Group’s positioning in potentially higher risk businesses and geographies. The ratings could additionally be under pressure if litigation or reputational issues materially weaken the Group’s capital position.
2018 marks the completion of a three - year restructuring plan that was initiated in 4Q15. Since then, CSG has reduced its reliance on Global Market revenues, significantly cut operating costs and successfully wound-down non-core assets. As a result, pre-tax profitability has improved, and the Group’s capital position has been reinforced. DBRS also considers that the Group is making progress in repositioning and growing its Wealth Management business globally and is expanding businesses across APAC and Emerging markets while reinforcing its domestic franchise in Switzerland. At end-2018, the Group’s non-core Strategic Resolution Unit (SRU) reduced to CHF 20.9 billion of assets (including operational risk) and CHF 29.6 billion of leverage exposure, significantly down from CHF 100.8 billion and CHF 168.5 billion respectively at end-2015.
For 2019 the Group targets a Return on tangible equity (ROTE) of at least 10% in 2019, which DBRS sees as challenging given that it was 5.5% in 2018. Moreover, DBRS remains cognizant of Credit Suisse’s positioning in businesses and areas that generally involve more risk, including leveraged lending and expansion into Asia Pacific, which could put pressure on profitability if there is a global economic and market downturn. CSG has suffered significant financial and reputational impact from conduct risk issues, across a broad number of areas, including violations of U.S. tax law and U.S. RMBS activities. Whilst litigation and reputation risks have significantly reduced after the RMBS settlement in 2016, the Group, similar to European banks, remains at risk of new litigation issues emerging.
CSG returned to bottom line profits after three years of net losses. For the full year 2018, the Group reported a net profit of CHF 2.0 billion, compared to net losses of CHF 948 million in 2017 and CHF 2.7 billion in 2016. Gross revenues were largely flat compared to 2017, with net income improvement driven by a significant reduction in operating costs and a lower tax cost. In 2018 revenue growth in Switzerland and International Wealth Management businesses offset weaker capital market revenues due to reduced client activity and adverse market conditions particularly in 4Q. The Group has successfully reduced operating expenses to CHF 17.3 billion in 2018 or down 9% YoY and 23% since 2016 thanks to headcount reductions, simplification of IT process and centralisation of support functions. However, DBRS considers CSG still has an elevated cost/income ratio, as calculated by DBRS, which stood at 82.6% in 2018, although improved from 90.4% in 2017.
Credit Suisse’s credit quality is generally strong, given the very low level of impaired loans and strong risk systems and processes. The impaired loans ratio was a low 0.7% at end-3Q18 and Market risk remains modest with a value-at-risk (VaR) of CHF 28 million in 4Q18, compared to the peak of CHF 249 million in 2008.
CSG has a solid funding and liquidity profile, with conservative asset/liability management underpinned by a long-term funding profile that includes a large deposit base and well-diversified market funding. Customer deposits of CHF 364 billion at end-2018 fund the Group’s entire CHF 288 billion loan portfolio, resulting in a strong loan to deposit ratio of 79%. Moreover, CSG has a sound liquidity position reflected in an average Liquidity Coverage Ratio (LCR) for 4Q18 of 184%.
CSG has strong risk-weighted regulatory capital levels, that compares well with peers. DBRS sees the Group as well-placed to meet future regulatory requirements. At end-2018, CSG had a fully-loaded BIS Basel 3 Common Equity Tier 1 (CET1) of 12.6% and a look-through Tier 1 leverage ratio of 5.2%. With CHF 38 billion of bail-inable debt instruments at 4Q18, the Group reported a look-through Swiss TLAC ratio of 29.4% , above the minimum requirement of 28.6% by 2020.
The Grid Summary Grades for Credit Suisse are as follows: Franchise Strength – Strong; Earnings Power – Good; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Good.
All figures are in CHF unless otherwise noted.
The principal applicable methodology is the Global Methodology for Rating Banks and Banking Organisations (July 2018). This can be found can be found at: http://www.dbrs.com/about/methodologies
The sources of information used for this rating include SNL Financial, Coalition Data, Dealogic, The Swiss National Bank and Company Documents. DBRS considers the information available to it for the purposes of providing this rating to be of satisfactory quality.
This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.
This rating included participation by the rated entity or any related third party. DBRS had no access to relevant internal documents for the rated entity or a related third party.
DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.
Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.
For further information on DBRS historical default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see:
Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.
Lead Analyst: Maria Rivas, Senior Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Global FIG
Initial Rating Date: September 13, 2006
Last Rating Date: March 13, 2018
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