DBRS Maintains Credit Suisse’s Intrinsic Assessment at A (high); Snr Ratings Remain Under Review Neg

DBRS, Inc. (DBRS) has today maintained its intrinsic assessment (IA) of A (high) for Credit Suisse AG (the Bank). The Bank’s Senior Unsecured Long-Term Debt & Deposit ratings remain at AA (low) and Credit Suisse Group AG’s (Credit Suisse or the Group) Senior Unsecured Long-Term Debt rating remains at A (high). These ratings are Under Review with Negative Implications (URN), reflecting the action taken on May 20, 2015 to review the systemic support assumptions for 38 European banking groups. A comprehensive list of ratings is included below. These actions follow a detailed review of the Group’s performance and outlook.

In confirming the IA at A (high), DBRS recognizes the Group’s overall franchise strength, supported by continued momentum in its Private Banking & Wealth Management (PB&WM) franchise and its well-entrenched Investment Banking (IB) franchise. Further supporting the rating level is Credit Suisse’s generally conservative risk profile, strong funding and ample liquidity. Constraints to the rating include earnings pressure driven by the drag from the Non-Strategic Units (NSUs), particularly given elevated levels of litigation expenses, and costs associated with higher regulatory requirements. Furthermore, capital levels remain at the lower end of the global peer group.

If DBRS changes its assessment of systemic support, the rating could be downgraded. Over the longer-term, positive pressure could arise if the Group continues to enhance its franchise value while demonstrating success in cost reductions and capital/leverage ratio improvement. Continued reductions in the Group’s cost/income ratio, which stood at 76% in 1H15 and above Credit Suisse’s stated target, would be viewed positively from a ratings perspective. With a fully-loaded Basel 3 common equity tier 1 (CET1) ratio of 10.3%, capital levels remain at the lower end of the global peer group despite Credit Suisse demonstrating an ability to rebuild capital following the sizable settlement with US authorities in 2Q14.

Furthermore, a longer track record demonstrating the successful implementation of operational risk enhancements and permeation of cultural change, could add positive pressure to the rating. Inability to achieve strategic targets could result in downward pressure on ratings. Additionally, further substantial litigation or reputational issues could also pressure the ratings, especially if DBRS perceives these issues to be causing damage to the Group’s strong PB&WM franchise.

Credit Suisse continues to adjust to the new operating environment in various ways, including a focused reduction of leverage exposure and simplification of its organizational structure to enhance resolvability. From a leverage perspective, the Group continues to demonstrate improvement reporting a BIS Basel 3 Tier 1 leverage ratio of 3.7% as of 2Q15. Targeted leverage reductions in 2H15 of approximately CHF 100 billion should contribute to further improvement. While in-line with European peers, Credit Suisse’s leverage ratio is at the lower end of the global peer range. Credit Suisse’s plans to adjust its legal entity structure to meet developing and future regulatory requirements should result in a substantially less complex and more efficient operating infrastructure. This could contribute to lower regulatory capital requirements, as well as reduced operating costs.

Credit Suisse is in the process of assessing its strategy, in light of the appointment of a new CEO, Tidjane Thiam. While specific details of the plan are not expected until later in the year, DBRS expects that an enhanced focus on servicing clients, improving profitability/returns and reducing capital intensive businesses will be key points of the plan. With the new CEO seat having been filled from outside the organization, DBRS will assess the quality of the new management team and evaluate how smoothly the transition progresses.

Notes:
All figures are in Swiss francs (CHF) unless otherwise noted.

The principal applicable methodology is the Global Methodology for Rating Banks and Banking
Organisations (June 2015). Other applicable methodologies include the DBRS Criteria – Support
Assessments for Banks and Banking Organisations (March 2015) and DBRS Criteria: Rating Bank
Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February
2015). These can be found at: http://www.dbrs.com/about/methodologies.

The sources of information used for this rating include SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

This is an unsolicited rating. This credit rating was not initiated at the request of the issuer.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

Generally, the conditions that lead to the assignment of a Negative or Positive Trend are resolved within a twelve month period. DBRS’s outlooks and ratings are under regular surveillance.

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90 day period. DBRS reviews and ratings are under regular surveillance.

For further information on DBRS historic default rates published by the European Securities and
Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

Lead Analyst: Lisa Kwasnowski
Rating Committee Chair: Alan G. Reid
Initial Rating Date: 13 September 2006
Most Recent Rating Update: 20 May 2015

For additional information on this rating, please refer to the linking document under Related Research.