Credit Suisse Stock Missed The Consensus In Q4, Is It Fairly Priced?

Credit Suisse’s stock (NYSE: CS) has lost approximately 16% YTD as compared to the 7% drop in the S&P500 over the same period. Further, at its current price of $8 per share, it is trading 17% below its fair value of just above $10 – Trefis’ estimate for Credit Suisse’s valuation. The bank missed the consensus estimates in Q4 2021, with the net revenues declining 14% y-o-y to $4.97 billion. This was driven by lower revenues in the investment banking, sales & trading, and wealth management divisions, partially offset by positive growth in the asset management business. Further, the firm’s pre-tax income significantly decreased from -$97 million to -$1.8 billion in the quarter, primarily due to a goodwill impairment charge of $1.8 billion. This resulted in an adjusted net income of -$2.3 billion (Note – Credit Suisse originally reports in CHF (Swiss Francs), the same has been converted to USD for ease of comparison).

The company’s total revenues increased 4% y-o-y to $24.8 billion in 2021. The growth was mainly due to asset management and Swiss universal bank revenues. While the investment banking revenues jumped 36% y-o-y in the year, it was almost offset by a 17% drop in the sales & trading business. That said, the positive increase in the top-line failed to translate into higher adjusted net income, which decreased from $2.8 billion to -$1.8 billion. It was due to an increase in the provisions for credit losses from $1.2 billion to $4.6 billion coupled with a goodwill impairment charge of $1.8 billion. Notably, CS faced several challenges in 2021, including the collapse of Greensill Capital and the Archegos Capital crisis, which has taken a toll on its bottom line.

The low-interest-rate environment is expected to improve in FY2022, benefiting the net interest income of lenders. However, sales & trading and investment banking revenues are likely to normalize with recovery in the economy. This will negatively impact the bank’s top-line. Overall, Credit Suisse revenues are expected to remain around $23.2 billion in FY2022. Additionally, CS’ adjusted net income is unlikely to make a quick recovery in the year as restructuring charges and higher compensation charges will hurt the bottom line. The bank is expected to report an annual EPS of $1.23 in FY2022, which coupled with a P/E multiple of 8x will lead to the valuation of $10.

Here you’ll find our previous coverage of Credit Suisse stock, where you can track our view over time.

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[1] Month-to-date and year-to-date as of 3/21/2022
[2] Cumulative total returns since the end of 2016

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