Credit Suisse (CS) Last Update 5/6/21
Related: BAC C GS UBS
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
Credit Suisse
$11.68
Yours
Trefis Price
N/A
$10.39
Market
 
Top Drivers for Period
Key Drivers
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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

Credit Suisse Company

VALUATION HIGHLIGHTS

  1. Wealth Management constitutes 67% of the Trefis price estimate for Credit Suisse's stock.
  2. Corporate & Institutional Clients constitute 23% of the Trefis price estimate for Credit Suisse's stock.

Latest Earnings Q4'2020

Credit Suisse reported a rather mixed performance in Q1 2020, with the company falling short of earnings consensus estimates. Overall, Credit Suisse reported revenues of CHF 7.57 billion, up 31% year-over-year while pre-tax income plunged from 1,201 CHF to CHF -757 million due to higher provision for credit losses.

Impact of Covid-19

Credit Suisse's stock has a lost considerable chunk of its value since the outbreak of coronavirus. The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Credit Suisse's wealth management business, in particular, was hit, as net new money inflows dropped. This impact was exacerbated by falling interest rates which negatively impacted the bank's net interest income.

The bank suffered a loss of CHF 4.4 billion in Q1 2021 due to the Archegos Capital crisis -- the U.S based hedge fund collapsed after taking on too much risk. Further, the bank is expected to report a loss of CHF 600 million in the second quarter of FY2021 due to the trading positions related to Archegos.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Credit Suisse's value that present opportunities for upside or downside to the current Trefis price estimate for Credit Suisse:

Bonds, Currencies & Commodities Trading

  • Yield on FICC Trading Assets: Credit Suisse's trading yield hovered around 3% before surging to 4% in 2019, after recovering from lows of -2.6% in 2008 at the peak of the global economic crisis. While we estimate yield figures to remain around 4% going forward, should the division see a better than expected performance in the coming years, the yield could increase to 6% over the Trefis forecast period. If that were to occur, there would be an upside of more than 3% to the Trefis price estimate.
  • Investment Banking EBT Margin: Margins for Credit Suisse's investment banking operations have fluctuated considerably since the downturn, reaching a high of 33% in 2009 and a low of negative 19% in 2015. After increasing to almost 11% in 2017, this figure declined to 7% in 2018. This metric increased to 11.5% in 2019 as market activity rebounded due to increased consumer confidence resulting from easing out of geopolitical tensions. We estimate the EBT margin to increase and reach around 13% over the Trefis forecast period. However, if increased competition in the bond-trading industry and stricter capital requirements are to weigh on profits, then margins could only increase to 10% by the end of this period. This represents a 4% downside to the current price estimate.

Wealth Management

  • Assets under Management - International Clients: Credit Suisse's cornerstone wealth management business aims to grow over the coming years by focusing on developing nations. The international business wealth management unit has reported a steady increase in the size of assets under management to reach $518 billion by the end of 2014. Although adverse foreign exchange movements and a sharp decline in securities valuation over the second half of 2015 led this figure lower to $457 billion in 2015. This figure increased to a high of $570 billion in 2017 before slightly declining to $560 billion at the end of 2018. This metric rebounded to reach a record high of $601 billion at the end of 2019. We expect these assets to grow at roughly 4% annually over our forecast period. If these assets grow at an annual rate of 7% over this period, then this would result in a 6% upside to the Trefis forecast price.

BUSINESS SUMMARY

Founded in 1856, Credit Suisse provides companies, institutional clients and high-net-worth private clients worldwide, as well as retail clients in Switzerland with advisory services and financial products. It is the second-largest Swiss bank, after UBS.

SOURCES OF VALUE

Trading bonds, currencies, and commodities is more valuable for Credit Suisse than trading equities & derivatives

Credit Suisse's trading assets for bonds, currencies, and commodities are nearly 10% higher than its trading assets for equities & derivatives. Although the bank has chosen to reduce its focus on the trading business in the past few years, we estimate better yields from bond trading compared to the equity trading business in subsequent periods. This makes the bond trading division more valuable for Credit Suisse than equities & derivatives trading.

Private banking more valuable than asset management

Credit Suisse's total assets under management (AUM) for its private banking division (Wealth Management and Corporate & Institutional Clients) is more than double the AUM for the asset management division. Because of this massive discrepancy, the bank's private banking division makes up a more significant portion of our price estimate for Credit Suisse's stock.

International wealth management clients more valuable than Swiss clients

The bank's assets under management (AUM) for international clients is more than twice that of Swiss clients. This, coupled with the bank's focus on growing its international business, makes international clients more valuable to its wealth management business.

KEY TRENDS

Increasing demand for investment banking services in emerging markets

With GDP and per capita income of emerging markets increasing steadily, there is an increasing demand for capital from companies in these markets to support the growing purchasing power of the people. Also, the integration of these markets with the global economy has led to a shift from family-run businesses to corporations. As a result of these factors, an increasing number of companies in these markets are going public, leading to a growing demand for equity underwriting services. Additionally, consolidation across different sectors is driving demand for M&A advisory services.

Stringent Swiss capital requirement norms will negatively impact the bank's return on equity figures

Swiss regulatory requirements are the strictest in the world when it comes to core capital ratios and leverage ratios for the country's two biggest banks: UBS and Credit Suisse. Both these banks have put in considerable effort over the years to revamp their business model to comply with the strict norms, but they have also had to raise a substantial amount of fresh capital. With earnings likely to grow at a modest pace over the coming years, the higher capital base is expected to result in lower return on equity (ROE) figures for the Swiss banks compared to their other global banking peers.

Volcker Rule to affect proprietary trading

The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Credit Suisse's proprietary trading desks have accounted for a significant percentage of its earnings in the past. The Volcker Rule is likely to result in a reduction in total trading revenues from the U.S. for the bank.

Economic Recovery to Stimulate Wealth Management

As economic conditions eventually improve, we expect that investors' risk appetites will also increase, which should drive investment and demand for wealth management services. Long term trends, including the ongoing shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies, will also positively impact revenues and assets under management. However, the outbreak of coronavirus has adversely impacted economic recovery. The current impact of COVID-19 cannot be ascertained, but it will take at least a couple of quarters before the economic conditions improve.