DBRS Morningstar Confirms Credit Suisse AG’s 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 CSG’s global franchise in private banking and wealth management, and its meaningful investment banking operations. The ratings also reflect the Group’s ample funding and liquidity, solid capitalisation and sound asset quality despite an increase in impaired loans due to the COVID-19 environment. The ratings also take into account the Group’s improved revenue generation and cost management, although DBRS Morningstar notes that CSG’s results in 2020 were supported by extremely high levels of market volatility, benefitting its investment banking and wealth management revenues through higher businesses client activity. In addition, the Group remains at risk of litigation and AML/compliance issues, which could impact the Group’s earning generation and franchise.

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

An upgrade of the Long-Term Issuer Rating would arise if the Group continues to demonstrate progress in reporting sustained revenue generation and improved cost efficiency. Further consistent growth in Assets Under Management, including net new money inflows, would also be viewed positively.

A downgrade of the Long-Term Issuer Rating would arise if CSG’s risk profile is negatively affected by the Group’s business and geographical expansion and/or if there is a sustained deterioration in asset quality.

RATING RATIONALE

CSG is among the largest international financial institutions and is the second largest banking group in Switzerland. The Group has meaningful wealth management and investment banks globally with a particular focus on expanding in the Asia-Pacific region. Litigation risks have reduced, especially after the settlement of the US RMBS issue in February 2021, when CSG settled a RMBS lawsuit with MBIA, for an amount of USD 600 million.

Despite the COVID-19 environment, the Group demonstrated resilient profitability and the Group continued to make progress in costs and revenue generation. 2020 results were negatively impacted by higher loan loss provisions driven by the coronavirus pandemic and the adoption of CECL as well as higher litigation provisions, largely related to the RMBS case. CSG reported CHF 2,669 million of net attributable income in 2020, down circa 22% Year-on-Year (YoY) from CHF 3,419 million in 2019 . The high volatility and favourable market performance drove strong revenue growth in its Investment Banking revenues, which partly offset ongoing pressure from the low interest rate environment in the other businesses, particularly in the Swiss Universal Bank and International Wealth Management segments. On an adjusted basis, excluding one offs items and at constant exchange rates, Profit Before Taxes (PBT) was down 6% YoY compared to a decline of 27% on a reported basis. The Return on Tangible Equity (RoTE) was 6.6% in 2020, down from 8.7% in 2019 but is still considered solid given the operating environment. The Group continued to manage down operating costs as measures taken in previous years started to pay off and operating expenses (excluding major litigation and restructuring expenses) were down around 2% YoY on an adjusted basis.

CSG' continues to have a low impaired loans ratio, at 1.2% at end-Q3 2020, although this was up compared to end-2019 (0.7%). Impaired loans totalled CHF 3.3 billion at end-Q3 2020 having grown 54% from end-2019, with the largest increases being experienced in the APAC and Investment Bank. Market risk appears well managed although the average value-at-risk (VaR) increased to CHF 72 million at end-2020 compared to CHF 35 million at end-2019 and CHF 66 million at end-2016.

CSG has a solid funding profile underpinned by a large and stable deposit base, a diversified long-term funding profile and a high level of liquid assets. CSG also has good access to market funding through a variety of short- and long-term sources. Moreover, CSG has a sound liquidity position reflected in an average Liquidity Coverage Ratio (LCR) of 190% for 4Q20. .

CSG’s capital position remains sound and DBRS Morningstar sees the Group as well-placed to meet future regulatory requirements. At end-2020, the CET1 ratio was 12.9%, slightly up from 12.7% at end-2019. .The Group expects the CET1 Ratio to remain stable at around 12.5% at least until June 2021. With CHF 41.9 billion of bail-inable debt instruments at end-2020, the Group reported a look-through Swiss TLAC ratio of 33.8%..

ESG CONSIDERATIONS

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/373262.

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 – Strong/Good.

Notes:
All figures are in CHF unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (June 8, 2020).
https://www.dbrsmorningstar.com/research/362170/global-methodology-for-rating-banks-and-banking-organisations
Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021)
https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883

The sources of information used for this rating include Company Documents, Credit Suisse 2015-2020 Annual Reports, Credit Suisse 2015-2020 Quarterly Reports, Credit Suisse 2015-2020 Results Presentations, Coalition Data, Dealogic, and 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.

With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

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 12-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. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/374413

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

Lead Analyst: Maria Rivas, Senior Vice President, Global FIG
Rating Committee Chair: Ross Abercromby, Managing Director, Global FIG
Initial Rating Date: September 13, 2006
Last Rating Date: March 2, 2020

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