RIP Credit Suisse?

Credit Suisse stock is down more than 62 percent for the past 12 years and almost 85 percent since March 2018. While investors have grown accustomed to substantial stock declines after the 2022 bear market, there is a key difference in this case. Credit Suisse isn’t a tech company – it falls squarely in the financial services space. Other sharp share price drops primarily affected the technology sector in 2022. Aside from Credit Suisse, most financial services companies were comparatively unscathed.

Credit Suisse Group is a Swiss company that offers private and investment banking services on a global scale. Its 2022 revenue came in at 1.492 trillion CHF (Swiss Francs), putting it in the same tier as Goldman Sachs, Morgan Stanley, and UBS. The trouble is that those organizations didn’t experience the same decline. Credit Suisse stands alone in its dramatic loss of value. Goldman Sachs stock is up for the past year and the past five years, as are Morgan Stanley stock and UBS stock.

Some investors are astonished by the fall of such a large financial services company. Why did Credit Suisse stock drop, and is it possible for Credit Suisse stock to recover? Is Credit Suisse stock a buy at today’s low price?

Why Did Credit Suisse Stock Go Down?

Swiss banks have a reputation as some of the most private in the world, which is appealing for those who wish to keep their wealth under wraps. Unfortunately, there is no reliable mechanism for differentiating legitimate funds from ill-gotten gains. That makes the Swiss financial system attractive to criminal enterprises.

Credit Suisse became embroiled in the sort of scandal that permanently harms even the strongest brands. In June 2022, Credit Suisse was found guilty of laundering money for a European cocaine smuggling ring. The company was fined, but that expense was minor compared to the reputational damage Credit Suisse experienced.

This scandal came on the heels of a handful of less-spectacular setbacks. For example, Credit Suisse was severely impacted when the U.S. investment firm Archegos collapsed in 2021, and when British financier Greensill became insolvent, Credit Suisse was negatively affected as billions of supply chain finance funds were frozen. The combination of crises set off a barrage of social media speculation about the company’s financial health. Credit Suisse clients began questioning their decision to do business with Switzerland’s second-largest bank, and many withdrew funds.

In November 2022, the Standard & Poor credit rating agency downgraded Credit Suisse to BBB-, which is one level above junk status. Shareholders reconsidered their investments, and many elected to sell their Credit Suisse stock. This sort of thing creates a downward spiral that is difficult to correct. As shareholders sell, the stock price goes down, which causes more shareholders to sell.

That’s exactly what happened here, and the result was a terrible 2022 earnings report. In February, Credit Suisse announced revenue of CHF 1.492 trillion, which is a 34 percent decline over 2021’s CHF 22.7 trillion. The year ended with a net loss of CHF 7.3 billion as compared to 2021’s CHF 1.65 billion. That’s the biggest loss Credit Suisse has experienced since 2008 – the year of the global financial crisis. Worse still, business leaders indicated that shareholders should expect additional losses in 2023.

Credit Suisse leaders published an optimistic statement about progress that has already been made in reversing the negative trend, as well as robust plans for a full turnaround in 2023, 2024, and beyond. However, it is difficult for analysts to muster much faith in the strategic plan when the company still plans to pay a cash dividend of CHF 0.05 per share for 2022.

Furthermore, following the February earnings call, there were a number of questions surrounding the Credit Suisse Chairman Axel Lehmann’s December statement that fund outflows had “completely flattened out,” “partially reversed,” and “basically stopped” in the fourth quarter. Credit Suisse share prices went up immediately following those remarks in December, but according to the results announced in February, those statements were false.

The discrepancy sparked an inquiry by the Swiss financial regulatory agency Finma, and analysts speculated about whether Lehmann was misinformed or deliberately misled the market. In either case, as Swiss analyst Daniel Bosshard said, “This is yet another inglorious chapter in the history of Credit Suisse.”

Is Credit Suisse Doomed?

On top of all the scandals surrounding Credit Suisse, there are now questions about the data and accounting methods used in its 2019 and 2020 financial statements. Just as the company was set to publish its 2022 annual report on March 9, 2023, concerns raised by the U.S. Securities and Exchange Commission (SEC) caused Credit Suisse to delay the report’s release.

While the company reaffirmed that its 2022 financial results, previously announced in February, were accurate, the damage was done. Share prices dropped even more. Analysts remarked that this was a devastating blow to a company that desperately needs to rebuild investor trust.

Despite the latest bit of bad news and the company’s continuing challenges, the consensus is that Credit Suisse is too big to fail. Business leaders are executing on an aggressive strategy to overhaul the business, with special attention to bringing expenses down through reorganization.

For now, analyst Bosshard put it best when he said Credit Suisse is “a major construction site” and stock is best avoided by investors. In fact, he said that at this time, “the share is only suitable for turnaround speculators.”

Does that mean RIP Credit Suisse? Not yet. However, though a Credit Suisse failure doesn’t appear likely, it’s not out of the question. In other words, Credit Suisse stock is not a buy.

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