Credit Suisse’s stock (NYSE: CS) has lost approximately 58% YTD, as compared to the 22% drop in the S&P500 over the same period. Further, the stock has lost almost 16% since the Q3 earnings on October 27, 2022.
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 third quarter by a significant margin. It posted total revenues of $3.9 billion – down 33% y-o-y, primarily due to lower revenues in the investment bank and wealth management businesses. The investment bank suffered due to lower underwriting activity and a decrease in sales & trading revenues. Similarly, wealth management was down due to lower recurring commissions & fees, transaction- and performance-based revenues, and other revenue. Further, the profit before tax decreased from $1.1 billion to -$354 million in the quarter. The profitability numbers were also affected by a significant increase in income tax expense from $621 million to $3.8 billion. It was because of a valuation allowance relating to the reassessment of deferred tax assets due to a comprehensive strategic review and current period earnings. Overall, the adjusted net income was around -$4.2 billion – down from $473 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 announced a restructuring plan with the earnings, which was long awaited. It plans to divide the investment bank into multiple parts, exit some businesses and reduce its exposure to securitized products, to reduce Risk Weighted Assets (RWAs). The bank will have one unit for its markets business, and then manage the capital markets and advisory division separately under CS First Boston. Further, the firm intends to reduce its expenses by 15% over the next three years and raise capital with gross proceeds of CHF 4 billion by issuing new shares.
Moving forward, we expect Credit Suisse’s revenues to remain around $15.8 billion in FY2022 and $18.54 in FY2023. While the bank is likely to post a net loss in the current year, the net income figure is estimated to improve to $1.1 billion in FY2023. This coupled with an annual EPS of $0.44 and a P/E multiple of just below 16x will lead to a valuation of $7.
|S&P 500 Return||-4%||-22%||66%|
|Trefis Multi-Strategy Portfolio||-5%||-26%||193%|
 Month-to-date and year-to-date as of 11/4/2022
 Cumulative total returns since the end of 2016