Fitch puts Credit Suisse grp, subsidiaries on ‘rating watch evolving’ amid UBS merger
2 min read 21 Mar 2023, 08:21 PM ISTThe move by Fitch comes as Credit Suisse is dealing with the fallout from the Greensill and Archegos scandals, which have raised concerns about risk management at the bank.
PremiumCredit rating agency Fitch Ratings has put Credit Suisse's 'BBB' Long-Term Issuer Default Rating and its subsidiaries' IDRs on Rating Watch Evolving (RWE). Additionally, Credit Suisse's additional Tier 1 (AT1) debt ratings have been downgraded to 'C' from 'BB-' after Swiss regulators decided that the nominal value of these instruments should be written down to zero.
The move by Fitch comes as Credit Suisse is dealing with the fallout from the Greensill and Archegos scandals, which have raised concerns about risk management at the bank.
The likelihood of an upgrade in Credit Suisse's ratings is reflected by the RWE, which is contingent upon the successful completion of its merger with UBS Group AG. The merger is anticipated to lead to enhancements in Credit Suisse's business model, risk management, and funding and liquidity profiles. However, in the event of the transaction failing, the RWE also indicates the possibility of a downgrade. UBS aims to finalize the merger in the second quarter of 2023.
Fitch highlights key rating drivers in its report:
Liquidity Support: The IDRs of Credit Suisse and its subsidiary, Credit Suisse AG (CSAG), are above their respective Viability Ratings (VRs) to reflect the group's access to extraordinary central bank liquidity support until and following the UBS transaction, when liquidity support from UBS will also become available. This means the default risk for senior creditors is lower than the risk reflected in the VRs. The Swiss National Bank has made CHF250 billion in liquidity lines available, of which CHF200 billion does not require the bank to post collateral.
Higher Rating at Operating Company: The Long-Term IDR of CSAG, the group's main operating company, is one notch above the group's IDR to reflect the additional protection offered to its external senior creditors by existing buffers of subordinated debt issued by the holding company.
Acquisition to Improve Business Profile: Credit Suisse and CSAG's 'b' VRs are below the 'bb+' implied VRs, as the group's business profile, which Fitch believes has weakened substantially, has a strong impact on the VRs. The RWE reflects Fitch's view that the planned acquisition by UBS should strengthen the group's business profile, and the risk of a further weakening if the transaction does not go ahead. The VRs were downgraded to 'f' before being upgraded to 'b' to reflect Fitch's view that the extraordinary support provided to Credit Suisse was required to restore its viability.
Strengthened Capitalisation: Fitch estimates that the write-down of AT1 instruments will add about 580bp to Credit Suisse's 14.1% end-2022 common equity Tier 1 ratio. The increased capital provides a buffer during a period in which Fitch expects performance to remain extremely weak, as improvement is unlikely until its integration with UBS.
No Long-Term Government Support: The Government Support Ratings of Credit Suisse and CSAG reflect our view that full capital support for all senior creditors cannot be assumed in the long term after the group received extraordinary support in the form of central bank liquidity.
