DBRS Morningstar Confirms Credit Suisse AG Long-Term Issuer Rating at A, Stable Trend

DBRS Ratings Limited (DBRS Morningstar) confirmed the Long-Term Issuer Rating of Credit Suisse AG (the Bank) at ‘A’ and the Long-Term Issuer Rating of Credit Suisse Group AG (Credit Suisse, CSG or the Group), the top-level holding company at A (low). The Bank’s and CSG’s R-1 (low) Short-Term Issuer ratings were also confirmed. The trend on all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is ‘A’, and the Support Assessment is SA1. The Group’s Support Assessment is SA3. See the full list of ratings in the table at the end of this press release.

KEY RATING CONSIDERATIONS

The confirmation of the ratings reflects the Group’s leading franchise in private bank and global wealth management as well as its meaningful investment banking operations. The ratings also take into account that profitability has improved in 2019, helped by revenue growth and good cost discipline, which has also strengthened the Group’s capital position through improved retained earnings. The ratings continue to reflect the Group’s sound funding and liquidity position, which is partly underpinned by a stable and large customer deposit base and good access to market funding and its strong asset quality. Moreover, the ratings continue to take into account that the Group still has an elevated cost/income ratio and that profitability improvement is partly supported by market performance-related revenues that, in DBRS Morningstar’s opinion, are less predictable sources of future earnings.

CSG’s Long-Term Issuer Rating is positioned one notch below the Bank’s IA reflecting the structural subordination of the holding company.

RATING DRIVERS

Positive rating pressure could arise if the Group continues to improve revenue generation and makes progress on expense control in coming quarters whilst maintaining an adequate risk profile, and if the transition to the recently appointed new CEO takes place smoothly.

Negative rating pressure would arise if there is any evidence that Credit Suisse’s risk profile is being negatively impacted by the Group’s business and geographical expansion. The ratings could additionally be under pressure if litigation or reputational issues materially weaken the Group’s capital position.

RATING RATIONALE

With operations throughout EMEA, the Americas and APAC, CSG is among the largest international financial institutions globally, and is the second largest banking Group in Switzerland. The Bank focuses on wealth management and is also one of the leading investment banks globally. CSG has been focusing on growing its Private banking and Wealth management businesses and reducing reliance on more volatile capital markets revenues. Whilst DBRS Morningstar notes some progress on this front, the Group is present in businesses and areas that generally involve more risk, including leveraged lending and an expansion into Asia Pacific. Moreover, whilst the risk is significantly lower than previously, the Group remains at risk of new litigation issues emerging.

CSG continued to show progress in improving profitability in 2019 by growing revenues and improving efficiency and this has been reflected in improved Return on Equity (ROE) of 7.7%% in 2019 compared to 4.7% in 2018. Net income attributable to shareholders was CHF 3.4 billion, up 69% Year on Year (YoY), largely boosted by one off gains totaling around CHF 1.1 billion from the revaluation of an equity stake and gains from the transfer of Investlab to Allfunds and the sale of some real estate assets. These offset higher net litigation provisions in 2019 of CHF 623 million, largely related to mortgage matters. Excluding one off gains , Income before Taxes was up 11.3% YoY (as calculated by DBRS Morningstar) largely driven by net revenue growth (which was up 2.3% YoY when excluding one the off gains), particularly in Fixed Income Sales and Trading and transaction based fee revenues in Private Banking. Following the completion of the restructuring plan in 2018, DBRS Morningstar considers CSG has improved its cost control. Operating expenses (excluding major litigation expenses) remained flat YoY, as lower restructuring costs offset some growth in compensation in 2019 and costs associated to investments in the franchise. The cost to income ratio, albeit improved YoY, remains high at 78% in 2019 (2018: 83%).

CSG's credit quality is supported by a very low level of impaired loans and market risk is modest. The impaired loans ratio was a low 0.7% at end-September 2019. Net loans were up 3% YoY at end-2019 and grew strongly in APAC, where CSG views businesses expansion opportunities. Market risk appears well managed, with a value-at-risk (VaR) of CHF 27 million in 4Q19, compared to CHF 49 million in 2015.

CSG has a solid funding and liquidity profile underpinned by a large and stable deposit base, a diversified long-term funding and high level of liquid assets. Customer deposits of CHF 384 billion at end-2019 were up 5.5% YoY and fund the Group’s CHF 296.8 billion loan portfolio, resulting in a strong loan to deposit ratio of 77%. CSG also has good access to market funding through a variety of short- and long-term. Moreover, CSG has a sound liquidity position reflected in an average Liquidity Coverage Ratio (LCR) of 198% for 4Q19.

CSG’s capital position strengthened in 2019 largely reflecting improved internal capital generation and the issuance of AT1 Instruments. CSG has strong risk-weighted regulatory capital levels and a good leverage position. CSG’s fully-loaded BIS Basel 3 Common Equity Tier 1 (CET1) was 12.7% at end-2019 . With CHF 41.1 billion of bail-inable debt instruments at end-2019, the Group reported a look-through Swiss TLAC ratio of 31.2%, above the requirement of 28.6% by 2020.

The Grid Summary Grades for Credit Suisse are as follows: Franchise Strength – Strong; Earnings Power – Strong/Good; Risk Profile – Strong/Good; Funding & Liquidity – Strong; Capitalisation – Good.

Notes:
All figures are in CHF unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 2019) This can be found at: http://www.dbrs.com/about/methodologies

The sources of information used for this rating include Company Documents, Coalition Data, Dealogic, S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

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

This rating included participation by the rated entity or any related third party. DBRS Morningstar had no access to relevant internal documents for the rated entity or a related third party.

DBRS Morningstar 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 Morningstar's outlooks and ratings are under regular surveillance

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

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Maria Rivas, Senior Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Global FIG
Initial Rating Date: September 13, 2006
Last Rating Date: March 12, 2019

DBRS Ratings Limited
20 Fenchurch Street, 31st Floor, London EC3M 3BY United Kingdom
Registered and incorporated under the laws of England and Wales: Company No. 7139960
Amtsgericht Frankfurt am Main, HRB 110259

For more information on this credit or on this industry, visit www.dbrs.com