Merger: Fitch Places Credit Suisse Group, Subsidiaries on RWE
Fitch Ratings has placed Credit Suisse Group AG’s (Credit Suisse) ‘BBB’ Long-Term Issuer Default Rating (IDR) and the IDRs of its subsidiaries on Rating Watch Evolving (RWE).
It said Credit Suisse’s additional Tier 1 (AT1) debt ratings have been downgraded to ‘C’ from ‘BB-‘, following the decision by the Swiss regulator that the nominal value of these instruments should be written down to zero.
KEY RATING DRIVERS
The RWE reflects the heightened likelihood that the ratings will be upgraded if the bank’s merger with UBS Group AG proceeds as planned, because the resulting business combination will likely result in improvements to Credit Suisse’s franchise and business model, risk management and funding and liquidity profiles. The transaction is expected by UBS to close in 2Q23.
The RWE also signals the risk of a downgrade should the transaction fail.
Liquidity Support: The IDRs of Credit Suisse and its subsidiary, Credit Suisse AG (CSAG), are above their respective Viability Ratings (VRs) to reflect the group’s access to extraordinary central bank liquidity support until and following the UBS transaction when liquidity support from UBS will also become available.
This means the default risk for senior creditors is lower than the risk reflected in the VRs. The Swiss National Bank has made CHF250 billion in liquidity lines available, of which CHF200 billion does not require the bank to post collateral.
Higher Rating at Operating Company: The Long-Term IDR of CSAG, the group’s main operating company, is one notch above the group’s IDR to reflect the additional protection offered to its external senior creditors by existing buffers of subordinated debt issued by the holding company.
Acquisition to Improve Business Profile: Credit Suisse and CSAG’s ‘b’ VRs are below the ‘bb+’ implied VRs, as the group’s business profile, which Fitch believes has weakened substantially, has a strong impact on the VRs.
The RWE reflects Fitch’s view that the planned acquisition by UBS should strengthen the group’s business profile, and the risk of a further weakening if the transaction does not go ahead. The VRs were downgraded to ‘f’ before being upgraded to ‘b’ to reflect Fitch’s view that the extraordinary support provided to Credit Suisse was required to restore its viability.
Strengthened Capitalisation: Fitch estimates that the write-down of AT1 instruments will add about 580bp to Credit Suisse’s 14.1% end-2022 common equity Tier 1 ratio.
The increased capital provides a buffer during a period in which Fitch expects performance to remain extremely weak, as improvement is unlikely until its integration with UBS.
No Long-Term Government Support: The Government Support Ratings of Credit Suisse and CSAG reflect our view that full capital support for all senior creditors cannot be assumed in the long term after the group received extraordinary support in the form of central bank liquidity. # Merger: Fitch Places Credit Suisse Group, Subsidiaries on RWE.
