Credit Suisse's new CEO was put in charge of reviewing the bank's strategy reviewed. Even after only a few days on the job, Ulrich Koerner's plans are being criticized.

Earlier in the week S&P Global Ratings and Moody's downgraded the creditworthiness of various debt instruments of Credit Suisse, as also reported by finews.asia.

Before the ink was even dry on those reports, Goldman Sachs piled on. Yesterday, Goldman banking analyst Chris Hallam recommended investors sell the shares of Credit Suisse. The «sell» rating of the powerful American investment bank made the rounds in the market in no time.

Focus on Costs

The downgrade in creditworthiness means refinancing will likely become more expensive for the institute. And after a brief ray of sunshine for the share price, developments there are cloudier as well. As Hallam explained, the underperformance of Credit Suisse securities since the beginning of 2021 is likely to continue, subsequently lowering his price target for the next twelve months from 7 Swiss francs ($7.30) to 5.80 francs. Currently, Credit Suisse trades below 5.20 francs, 42 percent lower than at the beginning of the year.

Newly-minted CEO Koerner is thus facing a hailstorm on the financial markets, and this is in the middle of summer. Having replaced his hapless predecessor Thomas Gottstein on August 1, the 59-year-old Swiss-German dual national has taken on the task of thoroughly revising the bank's strategy, initially formulated last November.

Among other things, Koerner proposed a medium-term reduction of the cost base from currently around 17 billion to 15.5 billion Swiss francs as well as a further streamlining of the investment banking unit.

But Wait...

Mind you, this «review», which was very short on specifics will not be completed until the fall. But credit rating watchdogs and analysts are not adopting a wait-and-see approach. Last Monday, for example, S&P said that the downgrade for Credit Suisse's debt securities was a consequence of the uncertainties surrounding the new bank management and the lack of a «clear strategy» at the institution, as finews.com also observed. For its part, Moody's cited, among other things, the challenging realignment of investment banking as a reason.

Koerner announced in July at the presentation of the bank's quarterly results that he seeks to transform the investment bank into a capital-light, advisory-oriented banking business with more focus on the market business that can complement the growth of asset management and the Swiss business.

Capitalization Implications?

Hallam now fears that new restructuring costs could erode the financial institution's capitalization, which has been more than adequate until now. In the investment banking unit, he first wants to see a 10 percent improvement in earnings before he gives Credit Suisse shares a higher rating.

The banking analyst is by no means alone in his criticism. Of eleven institutes, which produce research on Credit Suisse to the «Finanzen.net» (in German) portal, only the broker Kepler Cheuvreux recommends a buy. In stark contrast, there are five «sell» ratings, while the other five institutions take a neutral stance, and it remains to be seen how long those recommendations hold given recent developments

Advance praise looks different.