Credit Suisse drops to cycle lows as wealthy clients exit

The stock price continued in its downtrend today, losing another 7% and attacking the current cycle lows.

Bye bye wealthy clients

The second-largest Swiss bank – Credit Suisse – admitted this morning that it had recently experienced an astounding bank run in which rich customers withdrew as much as 84 billion Swiss francs ($88.3 billion) of their money during the first few weeks of the quarter, confirming the worst-case scenario and highlighting ongoing concerns over the bank’s restructuring efforts following years of scandals.

Since the beginning of October, high-net-worth individuals from around the world have withdrawn 10% of all assets managed by the bank’s important wealth management division. This will result in a sharp decline in fees at the division, around which Chief Executive Ulrich Koerner hopes to rebuild the bank.

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The bank stated that while outflows “have not yet reversed,” they have “significantly” decreased since the first two weeks of October.

The Zurich-based bank issued a loss forecast for the remaining three months of the year that might reach 1.5 billion Swiss francs ($1.6 billion), in large part due to the decrease in client funds for wealth and asset management from the beginning of October to November 11. Bloomberg claims that to be the worst exodus since the financial crisis.

On the other hand, wealthy investors increased their holdings in the wealth management division of UBS Group AG by more than $17 billion in the third quarter. Since the end of June, fresh money flows have shown a “marked improvement,” according to Julius Baer Group Ltd. Wealthy clients have added a net of 4.1 billion francs during the four months leading up to October.

“The massive net outflows in Wealth Management, CS’s core business alongside the Swiss Bank, are deeply concerning — even more so as they have not yet reversed,” said Andreas Venditti, banking analyst at Bank Vontobel AG in Zurich. “Credit Suisse needs to restore trust as fast as possible – but that is easier said than done.”

Worsening liquidity

Furthermore, the bank acknowledged that it had been compelled to temporarily dig into its liquidity reserves in order to meet minimal requirements set by its authorities. It emphasized, however, that its liquidity coverage ratio and net stable financing ratio—the two key metrics imposed by international regulators after 2008 to prevent a repetition of Lehman Brothers’ collapse—were always maintained.

The guidance for Credit Suisse’s core tier 1 capital ratio, which gauges its capacity to absorb any operating losses, was also reiterated. That came after a 4 billion Swiss francs capital increase that was announced in October received resounding support.

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Suppose the stock price drops below the current cycle lows of $3.75. In that case, we might see another leg lower, likely targeting the $3 barrier, implying that investors think the company will ultimately go bankrupt.

Credit Suisse daily chart, Source: Author´s analysis, tradingview.com