Business credit

What to expect from Credit Suisse shares?

Credit Suisse shares (NYSE: CS) is down about 39% year-to-date, compared to the S&P500’s 21% decline over the same period. Notably, the broader markets have witnessed selling pressures in recent months due to high inflation figures, aggressive interest rate hikes by the Fed and the Russia-Ukraine crisis. Additionally, CS stock is currently trading around $6 per share, 26% below its fair value of $8 – Trefis’ estimate for Valuation of Credit Suisse.

The Swiss bank posted results below expectations in the first quarter of 2022, with net income down 43% year-on-year to $4.8 billion. This is explained by a drop in income from wealth management and investment banking. The investment banking business suffered due to lower equity and debt underwriting income, and a significant reduction in sales and trading income. Additionally, operating expenses increased 23% in the quarter, primarily due to higher litigation costs. In contrast, provisions for credit losses declined favorably from $4.9 billion to -$119 million. Overall, adjusted net income fell 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 revenue improved 4% year-on-year to $24.8 billion in 2021. Growth was primarily driven by higher investment banking revenue (both advisory and underwriting) and asset management. That said, the company posted a net profit of -$1.8 billion, compared to $2.8 billion in 2020. This is due to a large accumulation of provisions for credit losses of $1.2 billion. of $4.6 billion, followed by a goodwill impairment charge of $1.8. billion. Notably, the increase in expenses is mainly due to the collapse of Greensill Capital and the crisis of Archegos Capital.

The Federal Reserve raised benchmark interest rates by 0.75% on June 15. This was the third rate hike in 2022. Along the same lines, central banks of other major economies also started the process of raising rates. This move will likely benefit the bank’s net interest income. However, the investment banking division is expected to remain under pressure due to increased market volatility and lower investment banking activity. Notably, the bank warned of a likely loss in the second quarter due to lower investment banking revenue. Globally, Credit Suisse income are expected to remain around $21.5 billion in fiscal 2022. Additionally, CS is expected to report adjusted net income of approximately $2.26 billion and annual EPS of $0.92. This, coupled with a P/E multiple just below 9x, will lead to a valuation of $8.

Here you will find our previous coverage of Credit Suisse stocks, where you can follow our view over time.

Stock prices have fallen precipitously across all sectors over the past few months and we are now in a bear market for the first time since March 2020 when the Covid-19 outbreak triggered a stock market crash. We capture key Dow Jones trends during and after major stock market crashes in our interactive dashboard analysis,’Comparison of stock market crashes.’

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