S&P downgrades Credit Suisse over fears of risks to its recapitalization strategy

By Geoffrey Smith

Investing.com — Credit Suisse’s (NYSE:CS) credit rating was hit again on Wednesday, as Standard&Poor’s said its plans for a major overhaul appear fraught with execution risk.

S&P downgraded the Swiss bank’s long-term rating by one notch to BBB-, the lowest rating yet to qualify as investment grade, saying it sees “significant execution risks in an economic and deteriorating and volatile market”.

He added that “certain details regarding the asset sales remain unclear”, but nevertheless left the bank’s outlook at “stable”.

CS management unveiled a sweeping restructuring last week aimed at pulling the bank out of a long decline caused by erratic leadership and poor risk management. It aims to raise $4 billion in new capital, with Saudi National Bank leading the capital raise by taking a 9.9% stake.

In addition, it aims to largely withdraw from investment banking, consolidating these activities under a new brand Credit Suisse First Boston. It has already agreed in principle to sell its securitized products business to a consortium led by private equity firms.

However, there was also good news for the bank on Wednesday. S&P’s arch-rival Moody’s decided not to downgrade its rating even though it downgraded one of its largest subsidiaries, while the Financial Times reported that the Qatari Investment Authority had the plans to increase its stake in the bank, alongside the Saudi-based company. investment company Olayan.

After the capital raise, the three Middle Eastern groups could own just under 25% of the bank, the FT said, citing people familiar with the matter.

The $4 billion capital raise will fill a hole in the balance sheet created by a similarly sized loss in the third quarter, which was the Swiss bank’s fourth consecutive quarterly loss. The bank’s ability to thrive thereafter will hinge on its success in bringing high-net-worth individuals back into its global asset and wealth management business, after a sharp acceleration in outflows over the past three months.

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