Credit Suisse’s stock (NYSE: CS) has lost approximately 39% YTD, as compared to the 21% drop in the S&P500 over the same period. Notably, the broader markets have witnessed selling pressure over the recent months due to high inflation numbers, aggressive interest rate hikes by the Fed, and the Russia-Ukraine crisis. Further, CS stock is currently trading around $6 per share, which is 26% below its fair value of $8 – Trefis’ estimate for Credit Suisse’s valuation.
The Swiss bank posted lower than expected results in the first quarter of 2022, with the net revenues decreasing 43% y-o-y to $4.8 billion. It was due to a drop in wealth management and investment bank revenues. The investment bank business suffered due to lower equity and debt underwriting income, and a significant reduction in the sales & trading revenues. Further, the operating expenses increased 23% in the quarter, mainly due to higher litigation-related costs. On the flip side, the provisions for credit losses saw a favorable decline from $4.9 billion to -$119 million. Overall, the adjusted net income was down from -$279 million to -$296 million. (Note – Credit Suisse originally reports in CHF (Swiss Francs), the same has been converted to USD for ease of comparison)
The company’s top line improved 4% y-o-y to $24.8 billion in 2021. The growth was primarily driven by higher investment banking (both advisory and underwriting) and asset management revenues. That said, the firm posted a net income of -$1.8 billion, down from $2.8 billion in 2020. It was because of a significant build-up in provisions for credit losses from $1.2 billion to $4.6 billion, followed by a goodwill impairment charge of $1.8 billion. Markedly, the increase in expenses was primarily due to the collapse of Greensill Capital and the Archegos Capital crisis.
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The Federal Reserve increased the benchmark interest rates by 0.75% on 15th June. This was the third hike in 2022. On similar lines, the central banks of other major economies have also initiated the rate hike process. This move will likely benefit the net interest income of the bank. However, the investment bank division is expected to remain under pressure due to higher volatility in the market and lower investment banking activity. Notably, the bank has warned of a likely second-quarter loss due to lower investment bank revenues. Overall, Credit Suisse’s revenues are forecast to remain around $21.5 billion in FY2022. Additionally, CS is likely to report an adjusted net income of around $2.26 billion and annual EPS of $0.92. This coupled with a P/E multiple of just below 9x will lead to the valuation of $8.
|S&P 500 Return||-8%||-21%||84%|
|Trefis Multi-Strategy Portfolio||-7%||-25%||194%|
 Month-to-date and year-to-date as of 6/16/2022
 Cumulative total returns since the end of 2016