Credit Suisse was spared further credit rating downgrades despite announcing billions of dollars in losses last year. Nevertheless, institutional investors are casting a wary eye over the troubled institution.

Last fall, when recently-minted CEO Ulrich Koerner presented a new strategy to pull Credit Suisse out of its quagmire, the major rating agencies held back with downgrades. Although major US credit rating agencies S&P Global, Moody's, and Fitch issued assessments on the current state of Switzerland's second-largest bank, it has so far been words and no action. 

At the Ready

S&P Global expects Credit Suisse to suffer a loss of around 1.5 billion Swiss francs ($1.6 billion) this year, something the agency considers «within expectations.» It is maintaining its «stable» outlook for the institution. Moody's confirmed its «negative» outlook for the bank's loans with a view to the next twelve to eighteen months.

Those are actually positive signs. Moody's is signaling it is granting Credit Suisse this grace period so it can proceed with its reforms. The credit analysts at Fitch remain are also holding back for the time being by keeping the Credit Suisse Group at a «BBB» rating. To be sure, that is only two notches above speculative or «junk» status.

Threats Are Looming

Threats that are in the air have to be taken seriously by Credit Suisse, especially as they regard its institutional clientele. Unlike private clients, who can choose their bank accounts and move their investments elsewhere according to their personal preferences, pension funds, and foundations are bound by investment regulations.

Should the bank's outstanding debt be downgraded to junk status, it would have a direct impact on institutional portfolios and the assessment of counterparty risk. In such a case, a new wave of securities sales and asset outflows could be expected, observers agree when asked.

Excellent Reputation

This would be a severe blow to its Swiss business with pension funds and institutional investors, where Credit Suisse still enjoys an excellent reputation. In a year to forget, this was one of the reasons the «Swiss Bank» could play a role as the group's lifeline last year.

The outflows of 5.4 billion francs the Swiss unit had to absorb in 2022 were due to outflows in the private client business. Inflows from institutional clients were able to partially cushion the blow. While Credit Suisse does not provide figures on this, the volume can be assumed to be in the billions. According to sources close to the bank, it is recording strong inflows this year.

More Difficult Times

However, the bankers responsible have to work much harder to achieve this, according to several independent sources in the pension fund industry who finews.com interviewed.

One industry insider notes that Credit Suisse is less likely to come out on top in new business, regardless of the performance and products the big bank offers. «When it comes to bidding, it has become more difficult for Credit Suisse to win the mandate,» says one observer, with much depending on the individual risk considerations of the pension funds.

What the Future Holds

Authorities have given the boards of trustees of Swiss pension funds a great deal of leeway in deciding which banks they want to deal with. Nevertheless, they have a responsibility. For those boards of trustees who are more risk averse in their thinking, a decision against Credit Suisse is obvious, says another observer. They would be under pressure to justify their decision to invest because of the bad press the bank has received.

Those opting to stay committed to the previous banking relationship will probably keep a close eye on the institution. Credit Suisse will be judged on whether and how it can invest in Swiss business with institutional clients. «What does the future hold?» is the key question for one observer.

This is precisely the question on which rating agency decisions hang. In its latest report, Fitch warned the bank's rating could come under pressure more quickly if assets under management did not recover substantially, or if the restructuring plan stalled and financial performance weakens as a result.