Daily Update: Making Sense of Credit Suisse

Today is Thursday, March 30, 2023, and here’s your curated selection of essential intelligence on financial markets and the global economy from S&P Global. Subscribe to be notified of each new Daily Update. 

Credit Suisse, after a 167-year history at the pinnacle of the venerated Swiss banking industry, will be quietly folded into crosstown rival UBS. On March 19, under pressure to act from Swiss regulators, Credit Suisse Chairman Axel Lehmann and UBS Chairman Colm Kelleher shared an awkward handshake in front of assembled press. The acquisition of Credit Suisse is something of an anticlimax after years of upheaval at the bank. For five years, it struggled to overcome successive scandals with attempted restructurings and new strategies. In the end, it simply ran out of time, and investors ran out of patience.

Before it was acquired, Credit Suisse was expected to lag its global peers in 2023, according to an article published by S&P Global Market Intelligence in January. The Swiss bank and asset manager had announced plans to cut 17% of its workforce and sell billions of dollars in assets. The stated goal of the restructuring was to stabilize the franchise, reduce risk and focus on less volatile wealth management and private banking operations. 

The turmoil at Credit Suisse dated to 2019, when a spying scandal involving then-CEO Tidjane Thiam and former wealth management chief Iqbal Khan led to Thiam’s departure. This unfortunate episode was followed by a string of scandals, including exposure to the collapses of U.S. hedge fund Archegos Capital and financial services company Greensill Capital, which were reputationally and financially damaging. The steady stream of scandal and embarrassment led to a slow slide in Credit Suisse’s share price in comparison to its peers and European banking indexes, according to S&P Global Market Intelligence.

It was supposed to all turn around in 2022 as Lehmann and Credit Suisse’s then-CEO Thomas Gottstein took on the painful task of overhauling the business to reduce the size of its problematic investment bank and refocus on its core wealth management business. While the restructuring was anticipated to negatively impact revenue, the bank was forced in June 2022 to halve dividends when its earnings difficulties exceeded projections. The bank posted a CHF1.59 billion second-quarter loss for 2022, its third consecutive quarterly loss. On Aug. 1, 2022, Gottstein was replaced with Ulrich K?rner as CEO and another strategy review was announced. 

At the time, Lehmann told investors the new strategy would be "bold," "deep" and "far-reaching," but also done in a "reasonable way." In practice, the value of the bank’s shares continued to decline, leading major shareholder Saudi National Bank to decline further capital commitments in early March. These compounding circumstances made it difficult for Credit Suisse to survive as an independent bank.

The acquisition of the troubled bank is not without risk for UBS. S&P Global Ratings revised its outlooks to negative from stable on UBS Group and UBS Americas Holding, UBS’ nonoperating holding companies, based upon the execution risk from the complex acquisition. 

Across the industry, banks have seen their businesses challenged by rising interest rates, according to S&P Global Ratings. While income from interest payments has increased, for some banks, higher rates have triggered a decline in the value of assets on their balance sheets. Overall, S&P Global Ratings projects financing conditions will keep tightening and bringing further episodes of credit market turbulence. S&P Global Ratings continues to monitor global banking risk.

Today is Thursday, March 30, 2023, and here is today’s essential intelligence.

Written by Nathan Hunt.

Economy

Global Economic Outlook Q2 2023: Real Resilience Meets Financial Fragility

Strong turbulence in the financial markets has disrupted a relatively orderly and necessary deceleration in trans-Atlantic growth. The trigger was the realization of interest rate risk in the U.S., amplified by the associated spillovers. The macro impact appears limited for now. The policy response was forceful in the U.S. and Europe, and markets have calmed but remain edgy. Inflation is still a concern and major central banks have continued to hike policy rates despite the market turbulence. But with an eye on financial stability, they will proceed cautiously.

—Read the report from S&P Global Ratings

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Capital Markets

Revenue-Weighted Indices: An Alternative To Core Equities

As persistently high inflation, high interest rates and geopolitical risks continue to dominate the macro environment, the S&P 500 Revenue-Weighted Index, S&P MidCap 400 Revenue-Weighted Index and S&P SmallCap 600 Revenue-Weighted Index have outperformed their corresponding float-adjusted market-capitalization weighted indices by more than 5% during the past one-year period.

—Read the article from S&P Dow Jones Indices

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Global Trade

Oil Product Stocks Rise To 5-Week High As Exports Slow

Stockpiles of oil products at the UAE's Port of Fujairah rose 2.7% in the week ended March 27, led by a 5.5% increase in light distillates such as gasoline and naphtha, according to Fujairah Oil Industry Zone data published March 29. Total inventories rose to 21.919 million barrels March 27, a five-week high, the FOIZ data provided exclusively to S&P Global Commodities Insights showed. It was the second consecutive weekly increase. Exports of oil products excluding fuel oil dropped to 3.25 million barrels in the week started March 20, the lowest in five weeks, according to Commodities at Sea data by S&P Global.

—Read the article from S&P Global Commodity Insights

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Sustainability

Study Finds Green Hydrogen Can Be Competitive With Fossil Fuels As Soon As 2030

Green hydrogen could undercut fossil fuels by the end of the decade in Southern California with technologies that are already commercially available, according to a recent analysis of the potential market in Los Angeles. The Green Hydrogen Coalition, which describes itself as an educational nonprofit, estimated that the cost of the fuel could fall to 69 cents per kilogram by 2030 thanks to new federal tax credits for "clean" hydrogen production. Green hydrogen is produced by electrolysis, which splits the hydrogen from the oxygen in water, powered by renewable energy.

—Read the article from S&P Global Market Intelligence

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Energy & Commodities

EDF Extends Strike Warning By Another Day, Delays Reactor Returns Further; Forward Prices Rise

French nuclear operator EDF has delayed more reactor returns and extended its strike warning by another 24 hours to late March 29, it said. Daily delays to planned reactor returns across now 10 units announced since March 17 alone amount to a combined 97 days in lost availability with an estimated 2.7 TWh loss in output, according to S&P Global Commodity Insights calculations tracking EDF Transparency notes. Actual output was little changed on the day at around 34 GW, with nuclear averaging just below 34 GW since the current wave of strikes started March 3.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Disney+ Global Subscriber Estimates, Year-End 2022

Combined subscribers across Walt Disney Co.'s Disney+ and Disney+ Hotstar services rose 24.6% on an annual basis in 2022 to hit 161.8 million paid subscribers. The well-known Disney brand, tie-ins to popular franchises such as "Star Wars" and "Marvel" and heavy spending on content and programming have helped Disney+ gain traction in major subscription video markets around the world.

—Read the article from S&P Global Market Intelligence

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