Credit Suisse to remain ‘under pressure’ but analysts wary of Lehman

Credit Suisse shares briefly sank to an all-time low on Monday while credit default swaps hit a record high, as the market’s skittishness about the Swiss bank’s future became abundantly clear.

Shares continued to recover on Tuesday from the previous session’s low of 3.60 Swiss francs ($3.64), but were still down more than 53% on the year.

The embattled lender is embarking on a massive strategic review under a new CEO following a string of scandals and risk management failures, and will give a progress update alongside its quarterly earnings on Oct. 27.

Credit Suisse credit default swaps — derivatives that serve as a kind of insurance contract against a company defaulting on its debt — soared to a spread of more than 300 basis points Monday, well above that of the rest of the sector.

Credit Suisse CEO Ulrich Koerner last week sought to reassure staff of the Swiss bank’s “strong capital base and liquidity position” amid market concerns and a rise in credit-default swaps.

In an internal memo sent to staff last week, Koerner promised them regular updates during this “challenging period” and said Credit Suisse was “well on track” with its strategic review.

“I know it’s not easy to remain focused amid the many stories you read in the media — in particular, given the many factually inaccurate statements being made. That said, I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank,” Koerner said.

Based on Credit Suisse’s weaker return on equity profile compared to its European investment banking peers, U.S. investment research company CFRA on Monday lowered its price target for the stock to 3.50 Swiss francs ($3.54) per share, down from 4.50 francs.

This reflects a price-to-book ratio of 0.2x versus a European investment bank average of 0.44x, CFRA Equity Analyst Firdaus Ibrahim said in a note Monday. CFRA also lowered its earnings-per-share forecasts to -0.30 francs from -0.20 francs for 2022, and to 0.60 francs from 0.65 francs for 2023.

A price-to-book ratio measures the market value of a company’s stock against its book value of equity, while earnings-per-share divides a company’s profit by the outstanding shares of its common stock.

“The many options rumored to be considered by CS, including exit of U.S. investment banking, creation of a ‘bad bank’ to hold risky assets, and capital raise, indicate a huge overhaul is needed to turn around the bank, in our view,” Ibrahim said.

“We believe that the negative sentiment surrounding the stock will not abate any time soon and believe its share price will continue to be under pressure. A convincing restructuring plan will help, but we remain skeptical, given its poor track record of delivering on past restructuring plans.”

Despite the general market negativity toward its stock, Credit Suisse is only the eighth-most shorted…