As UBS acquires Credit Suisse, Fitch puts Swisscard on 'rating watch negative'
1 min read 23 Mar 2023, 05:21 PM ISTFitch has placed Swisscard AECS GmbH on rating watch negative after Credit Suisse's rating action.
PremiumSwisscard AECS GmbH's Long-Term Issuer Default Rating (IDR) of 'A-' and Short-Term IDR of 'F2' have been placed on Rating Watch Negative (RWN) by Fitch Ratings. Additionally, Fitch has lowered Swisscard's Shareholder Support Rating (SSR) from 'bbb' to 'bb-' and put it on Rating Watch Evolving (RWE).
In a statement, Fitch Ratings said, “The RWN on the IDRs reflects Fitch's view that Swisscard's standalone credit profile could be negatively affected by the announced merger agreement between Credit Suisse Group AG (CS; BBB/RWE/b/RWE) and UBS Group AG (A+/RWN/a+/RWN)."
“In particular, Fitch believes the announced merger could have an adverse impact on Swisscard's franchise, business model stability and long-term strategic direction," it said.
It said, “The downgrade of Swisscard's SSR mirrors the downgrade of Credit Suisse (Schweiz) AG's (CS Schweiz, A-/RWE/bb/RWE) Viability Rating (VR) to 'bb' from 'bbb+'. The RWE on the SSR mirrors that on CS Schweiz's VR."
Swisscard is a renowned credit card provider and is co-owned by CS Schweiz, which is the domestic Swiss bank subsidiary of CS, and American Express Company (Amex; A/Stable/a), with each holding a 50% stake. Despite being a subsidiary of CS Schweiz, Swisscard's overall assets are insignificant, amounting to less than 1% of its parent company's total assets. Furthermore, Swisscard's business activities are relatively small compared to the main operations of CS and UBS.
“Swisscard's Long-Term IDR is driven by its standalone credit risk profile and reflects its robust and low-risk business model with tight credit risk control, strong profitability and moderate leverage. The ratings are constrained by the company's monoline and geographically concentrated business model and reliance on wholesale funding with high asset encumbrance," the Fitch Ratings statement said talking about the key rating drivers.
“In our view, Swisscard is strategically important but not core to CS Schweiz, resulting in an SSR that is one notch lower than CS Schweiz's VR of 'bb' that anchors our support assessment. We use CS Schweiz's VR rather than its Long-Term IDR as the anchor rating because we view it as unlikely that CS Schweiz would use buffer capital created from a resolution process to support Swisscard," it added.
