A study by Morgan Stanley and a ratings cut by Moody's are adding to the growing clamor for fundamental changes to Credit Suisse's business model.

Credit Suisse has to thoroughly re-examine its business model after the Greensill and Archegos debacles, a study from Morgan Stanley said Tuesday.

It added that the time had now come to put the integrated model under the microscope and use the globally attractive wealth management business as the base.

Capital Costs Not Covered

The bank’s investment activities had not covered the capital costs, even in 2020 which was a highly active year and should bear most of the burden of any restructuring.

Morgan Stanley added that the coming quarters were likely to be difficult for Credit Suisse, citing the investigation by Swiss financial regulator Finma and the immediate effect on revenues because of the review of risk management as sources of uncertainty.

Moody’s Cuts Rating

Adding to Credit Suisse’s woes, Moody’s Investors Service cut its credit rating for Credit Suisse AG by one notch to «A1» from «Aa3». The rating for CS Group remained on «Baa1.» Moody’s raised the outlook for both ratings to stable from negative.

Moody’s said its ratings downgrade reflected its view of a higher-than-anticipated risk appetite and deficiencies in Credit Suisse's risk management and awareness as well as related control processes and frameworks highlighted by the Greensill and Archegos affairs.

Fines, Reputational Damage

It also cited potential additional strain on the bank's financial profile and, in particular, its capital position due to further losses from the wind-down of the Archegos-related positions during the second quarter of 2021 or the Greensill supply chain funds either as a result of litigation, regulatory fines or other efforts to mitigate franchise and reputational impairment.

Loss of Clients

Moody's added that the potential for client defections and franchise impairment from the possible reputational effects these events might have on the bank's core asset and wealth management businesses as well as its investment banking franchise was also a factor.