Credit Suisse Really Bottoming Out, Isn’t She? (NYSE:CS)

In early September, Reuters reported that Switzerland’s second-largest bank, Credit Suisse (NYSE:CS) was aiming to cut around 5.000 jobs, nearly one out of ten, to save costs and avoid a capital increase that Wall Street continues to fear given the stock price performance which is down 43.5% in one year and 14.5% in the last three months. At that time, Credit Suisse replied that “an update to the progress of our global strategic review when we will present during the Q3 results” explaining also that “it would be premature to comment on any possible outcome before then“.

The Swiss banking giant is facing a difficult phase after a series of scandals, lawsuits, and monstrous losses that have dragged down the company’s financials and credibility. No recap today; however, below are Mare Evidence Lab’s previous publications to get well informed with the story up to now:

1. Valuation Is Less Important Than Earnings
2. YTD – Third Profit Warning
3. We Told You So

So, what is going on?

The new Credit Suisse CEO, Ulrich Körner, who the shareholders have designated to succeed Thomas Gottstein on the occasion of the publication of the second quarter results, begins to design the first line of managers who will report directly to him and starts to carry out a radical internal bank reorganization. In short, former Deutsche Bank Treasurer Dixit Joshi was chosen as CFO while Francesca McDonagh will be COO and Francesco De Ferrari was confirmed at the helm of wealth management.

In addition, according to the FT which collected rumors close to the dossier, Credit Suisse is studying an Investment Banking split into three distinct units. The plan under consideration would also include an asset sale to avoid a capital increase. Among the profitable assets destined for sale, there would be the securitized/collateralized products division. Once again, the Swiss bank responded by reiterating that a “vast strategic examination” is underway, but that any conclusion in this regard is premature.

Also, according to the Financial Times, the Investment Banking plan would also involve the creation of a bad bank, which would take care of the riskiest activities and would be one of the three new units. The last division would include consultancy activities.

Recently, Bloomberg news reported that during an internal meeting, it was formulating a proposal to offer Investment Banking managers Credit Suisse shares. Bloomberg has also noted that the bank may resume the name First Boston, which it abandoned many years ago, for its American investment banking business. Rebranding is just a strategy, but what matters is the company’s profitability.

Conclusion and valuation

The very low share price on the Zurich Stock Exchange remains in the spotlight and is producing rumor after rumor of a possible acquisition by other large international banks. Despite the difficulties due in part to the international economic situation and in part to the events mentioned, any further reorganization could simply be another element of pure marketing. First, we need to see the results, and so we value Credit Suisse at CHF 6 per share; however, despite the upside potential compared to the current price, the rating remains neutral.