Credit Suisse stocks bleed following weak FY2022 result, and its biggest shareholder rules out more cash

Key Takeaways:

• Credit Suisse stocks dropped over 24% following the weak FY2022 results released on 14 March 2022, and its biggest shareholder ruled out more cash.
• The Company’s weak performance was driven by the global economic activity slowdown in 2022 coupled with rising inflation.
• The big four banking stocks in Australia, too, witnessed a fall in their share price.

ASX 200 index tumbled sharply today by ~1.5% (AEDT 12:50 PM) to 6,965.40 following the turbulent trading session across the US and Europe. This week continues to be turbulent for ASX due to the global banking system contagion following the collapse of two US banks, Silicon Valley Bank and Signature Bank, over the past week. Soon after, worries followed in Credit Suisse after the Bank reported material weaknesses in internal control over financial reporting as of 31 December 2022. On 15 March 2023, Credit Suisse Group shares tumbled over 24%.

Why Credit Suisse shares tumbled?

On 14 March 2023, Credit Suisse released its annual report and reported a significant drop in revenue from CHF22,696 million in FY2021 to CHF14,921 million in FY2022. Also, the Bank experienced a significant drop in net loss, which was a concern for investors.

The Company’s result was impacted by the global economic activity slowdown in 2022 and rising inflation. Global equity markets declined substantially, major Government bonds increased, and the US Dollar was stronger against other major currencies in 2022.

As pointed out above, the Company identified material weakness in the internal control during the period ended 31 December 2022. The management identified that Group’s internal control over financial reporting was ineffective. The material weaknesses were due to the failure to design and maintain an effective risk assessment Risk factors 51 process to recognise and analyse the risk of material misstatements in its financial statements and the failure to design & maintain effective monitoring activities relating to:

1. Providing adequate management mistakes over the internal control evaluation procedure to assist the Group’s internal control objectives.

2. Involving proper & adequate management resources to aid the risk assessment as well as monitoring objectives.

3.  Assessing and promptly communicating the severity of deficiencies to those parties accountable for taking remedial action.

Because of these problems, investors started dumping their holdings from the Company. Even its biggest shareholder, “The Saudi National Bank,” said it could not provide the Swiss Bank with further assistance. In 2022, Saudi National Bank took a 9.9% stake in the Company as a part of the Swiss Lender’s $4.2 billion capital raise to fund a huge strategic overhaul to improve the investment banking performance and address a response of risk.

The Next Step:

Today Credit Suisse will exercise an option to borrow up to CHF 50 billion under two loan facilities to improve its liquidity conditions. The Bank will open a cash tender offer to repurchase ten dollar-denominated debt securities for up to $2.5 billion and a separate tender offer for euro-denominated debt securities for up to 500 million Euro.

Australian Bank Performance:

The News related to Credit Suisse has definitely influenced ASX listed stocks, particularly the bank stocks. The big four Australian banks, National Australia Bank Limited (ASX: NAB), Westpac Banking Corporation (ASX: WBC), ANZ Group Holdings Limited (ASX: ANZ), and Commonwealth Bank Of Australia (ASX: CBA), witnessed a drop in their share prices.

What Should we do as an investor?

The fall in the share price of big players like Credit Suisse sent shock waves across the global banking sector. Many European Banks experienced a fall in their share prices as well. As per the Bank of England, the UK Banking system is not at risk and is safe and well-placed. While Credit Suisse could not perform well in FY2022, it is now focusing on the execution of the strategic plans transforming into the new Credit Suisse with its top franchises in Switzerland and in Wealth Management, strong capabilities in Asset Management and Markets and the carveout of CS First Boston as leading capital markets and advisory business. The Company aims to improve its cost efficiency in a sustainable way and invest in core businesses and improve overall risk management.

Regarding Australian banking stocks, the fall in the banking stocks was most driven by market sentiment. But we should never forget that investors may withdraw their holdings due to weak market sentiment, but any company’s strong financial and balance will push the stock price up.

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