Credit Suisse’s stock (NYSE: CS) has lost approximately 59% YTD, as compared to the 26% drop in the S&P500 over the same period. Further, the stock has lost almost 25% over the last ten trading days. The recent decline was after Reuters’ report on 23rd September that the bank is considering several options to overhaul the investment banking business like raising fresh capital and exiting the U.S. market. While the firm denied these claims, it has made the investors cautious about the stock. Notably, more information about the restructuring plan is likely to come with Q3 results.
CS stock is currently trading around $4 per share, which is 41% below its fair value of $7 – Trefis’ estimate for Credit Suisse’s valuation. The Swiss bank missed the consensus estimates in the second quarter of 2022, with net revenues decreasing 32% y-o-y to $3.8 billion. It was driven by a 43% drop in the investment bank unit, followed by lower wealth management and asset management revenues. The investment bank primarily suffered due to a significant drop in the capital markets (equity underwriting and debt origination) revenues, and a decrease in FICC (fixed income, currency & commodity) trading. Markedly, the capital markets business was down because of lower deal volumes. The wealth management struggled due to a decrease in other revenues, which include a loss on the equity investment in Allfunds Group and on the equity investment in the SIX Swiss exchange. Further, the operating expenses increased 4% in the quarter due to higher general & administrative costs and restructuring expenses. Overall, the adjusted net income was around -$1.65 billion – down from $278 million in the previous year (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 grew 4% y-o-y to $24.8 billion in 2021. However, it witnessed a 39% y-o-y drop in the first half of 2022 to $8.56 billion. The decline was due to negative growth in the investment bank, wealth management, and asset management divisions. On the flip side, the Swiss bank unit posted a slight growth. On the cost front, the operating expenses increased 13% y-o-y, further hurting the bottom line. Altogether, the profit before tax was reduced from $55 million to -$1.68 billion.
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Moving forward, we expect Credit Suisse’s revenues to remain around $18.6 billion in FY2022 and $19.6 billion in FY2023. While the bank is likely to post a net loss of $0.7 billion in the current year, the net income figure is estimated to improve to $1.3 billion in FY2023. This coupled with an annual EPS of $0.54 and a P/E multiple of just above 12x will lead to the valuation of $7.
|S&P 500 Return||-2%||-26%||58%|
|Trefis Multi-Strategy Portfolio||-1%||-26%||191%|
 Month-to-date and year-to-date as of 10/3/2022
 Cumulative total returns since the end of 2016