(The following statement was released by the rating agency)
Oct 10 - Fitch Ratings has affirmed Credit Suisse AG's
Issuer Default Rating at 'A' with a Stable Outlook and Short-term IDR at 'F1'.The agency has also affirmed the bank's Viability Rating (VR) at 'a', SupportRating at '1' and Support Rating Floor (SRF) at 'A'. At the same time, Fitchaffirmed the ratings of Credit Suisse's subsidiaries and holding company and ofits issues. A full list of rating actions is at the end of this rating actioncommentary.
The rating actions on Credit Suisse have been taken in conjunction with Fitch'sGlobal Trading and Universal Bank (GTUB) periodic review. Fitch's outlook forthe industry is stable. Positive rating drivers include improved liquidity,funding, capitalisation and more streamlined businesses, all partly driven byregulation. Offsetting these positive drivers are substantial earnings pressure,regulatory uncertainty and heightened legal and operational risk.
RATING ACTION RATIONALEThe affirmation of Credit Suisse's VR and IDR reflects the bank's operations asa global investment bank and wealth manager with a solid domestic retail andcommercial banking franchise. Credit Suisse raised new capital in H212, whichtogether with aggressive reduction of risk-weighted assets (RWA), resulted instronger capitalisation. Its Fitch core capital ratio and regulatory capitalratios measured under Basel III RWA are now in line with its peers.
Fitch expects the bank to continue to concentrate on its core segments ininvestment banking, which will continue to be the group's main risk centre. Thegroup has reduced various market risk metrics, and Fitch expects the investmentbank's earnings to show less volatility, after Q411 losses in the investmentbank that partly reflected its reduction in inventory and risk positions.Nevertheless, the agency considers that investment banking activities give riseto material market and operational risks, which are captured in Credit Suisse'sVR.
The affirmation of Credit Suisse's Support Rating and SRF is based on Fitch'sview that the probability of support from the Swiss authorities for CreditSuisse, if required, remains extremely likely due to the bank's systemicimportance for the Swiss financial sector and the Swiss economy as a whole.
RATING DRIVERS AND SENSITIVITIES - IDRS, VR AND SENIOR DEBTCredit Suisse's IDRs, its Stable Outlook and senior debt rating are driven byits VR, which is based on Credit Suisse's good global wealth managementfranchise and its significant market share in global investment banking, as wellas its retail and commercial banking presence in Switzerland. The VR alsoreflects Credit Suisse's good track record in risk management, strong liquidityand improved capitalisation following the capital measures announced in July2012.
Fitch expects Credit Suisse to maintain a significant presence in investmentbanking, and the agency's view of risk in this industry is a negative ratingdriver. However, the bank has a good track record in managing the related risks,which along with its strong global wealth management and domestic bankingfranchises, places the VR in the 'a' category. Fitch views positively thereduced market risk exposure in the investment bank, where Basel III RWAdeclined by about 38% between end-June 2011 and end-June 2012.
The aggressive RWA reduction resulted in losses in the investment bank in Q411,but Fitch expects revenue volatility in the segment to have fallen as a result.Credit Suisse's VR is sensitive to Fitch's assumptions on the bank's riskappetite in the investment bank and would come under pressure if Credit Suissematerially increased its risk taking in this segment or if it was unable tomaintain earnings volatility at a moderate level.
Credit Suisse's VR reflects Fitch's expectation that the bank will maintainstrong capital ratios. Swiss regulations will require Credit Suisse to operatewith a minimum 10% core capital ratio under Basel III by 2019. In addition, thebank will have to hold 9% of loss-absorbing capital, which can be in the form ofcontingent convertible instruments.
In July 2012, the bank announced measures to strengthen its capital ratios,including the issuance of CHF3.8bn mandatory convertible notes that will convertinto common equity in March 2013. As a result, Credit Suisse estimates a commonequity tier 1 (CET1) ratio of 8.6% at end-2012, which places it in line withmost of its GTUB peers. The increase in equity will also reduce balance sheetleverage, although it remains some of the highest among its peers. Fitch expectsthe bank to increasingly manage its balance sheet size, which should result inan improved leverage ratio. The generally good quality of assets and the group'sstrong funding mitigates the high leverage, although Fitch still considers thisa negative rating driver for the bank relative to most of its peers.
In addition to its CET1 capital, the bank has about CHF4.3bn contingentconvertible notes, which convert into common equity if the group's CET1 ratiofalls below 7%. Fitch considers this buffer positive for the bank's VR as itprovides further protection for senior creditors. Failure to reach and maintainstrong capital ratios would put pressure on Credit Suisse's VR.
The VR is also based on Credit Suisse's strong global wealth managementoperations, which provide the bank with a more stable source of earnings,although earnings in the segment are to some extent driven by clients' riskappetite and transaction volumes. With assets under management in the privatebank of about CHF989bn at end-June 2012, Credit Suisse is one the world'slargest wealth managers. The bank's VR is sensitive to any material andstructural changes in the size of its wealth management operations.
Fitch considers Credit Suisse's liquidity strong as it benefits from a large andhistorically stable customer funding base, and the bank estimates a net stablefunding ratio of above 100% at end-June 2012. Liquidity is managed centrally,and Credit Suisse maintains a large pool of liquid assets, partly driven bystringent Swiss regulatory requirements. At end-June 2012, the bank reportedCHF146bn of cash, securities accepted under central bank facilities and otherliquid securities.
RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SRFThe Support Rating and SRF are sensitive to a change in Fitch's assumptionsaround the availability of sovereign support for the bank. In this context,Fitch is paying close attention to ongoing policy discussions around banksupport and 'bail in'. An upgrade of Credit Suisse's SRF is unlikely givenFitch's expectation of diminishing sovereign support for banks in Switzerlandand globally.
Switzerland has made significant progress in implementing specific legislationfor the country's two largest banks (Credit Suisse and UBS AG), which shouldultimately facilitate bank resolution and will eventually result in decliningsovereign support for Credit Suisse. However, Fitch expects that this will be agradual and lengthy process, and the agency will take corresponding ratingactions when and if deemed appropriate.
Credit Suisse's Long-term IDR is at its SRF, but if the SRF was downgraded, theIDRs would only be downgraded if the VR was below its current 'a' level.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIESSubordinated debt and other hybrid capital issued by Credit Suisse, CreditSuisse Group AG and by various issuing vehicles are all notched down from theVRs of Credit Suisse or Credit Suisse Group AG in accordance with Fitch'sassessment of each instrument's respective non-performance and relative lossseverity risk profiles, which vary considerably. Their ratings are primarilysensitive to any change in the VRs of Credit Suisse or Credit Suisse Group AG.
HOLDING COMPANY RATING DRIVERS AND SENSITIVITIESCredit Suisse Group AG's IDRs and VR are equalised with those of Credit Suisseand reflect its role as the bank holding company and the modest double leverageof 102% at end-2011 at holding company level.
Credit Suisse Group AG's Support Rating and SRF reflect Fitch's view thatsupport from the Swiss authorities for the holding company is possible, butcannot be relied on. As Credit Suisse AG's SRF is 'No Floor', the holdingcompany's Long-term IDR is driven purely by its VR and is therefore primarilysensitive to the same drivers as Credit Suisse's VR.
SUBSIDIARY AND AFFILIATED COMPANY RATING DRIVERS AND SENSITIVITIESCredit Suisse International is a UK-based wholly-owned subsidiary of CreditSuisse Group AG, and Credit Suisse (USA) Inc. (CSUSA) is the group's mainUS-based broker-dealer. Their IDRs are based on support from their parent andare therefore equalised with Credit Suisse's to reflect their core functionswithin the group as major operating entities in the investment banking business.
Credit Suisse International is incorporated as an unlimited liability company,which underpins Fitch's view that there is an extremely high probability that itwould receive support from its parent if needed. In H112, Credit SuisseInternational restructured its capital base, redeeming subordinated debt placedwith its parent with participating shares placed with the parent, therebyimproving the quality of its capital.
CSUSA's parent companies (Credit Suisse and Credit Suisse Group AG) in 2007issued full, unconditional and several guarantees for the firm's outstanding SECregistered debt securities, which in Fitch's opinion demonstrate the role of thesubsidiary and the extremely high probability that the firm would be supportedif needed.
The rating actions are as follows:
Credit Suisse:Long-term IDR: affirmed at 'A', Outlook StableShort-term IDR: affirmed at 'F1'Viability Rating: affirmed at 'a'Support Rating: affirmed at '1'Support Rating Floor: affirmed at 'A'Senior unsecured debt (including programme ratings): affirmed at 'A'/'F1'Senior market-linked notes: affirmed at 'Aemr'Subordinated lower Tier 2 notes: affirmed at 'A-'Tier 1 notes and preferred securities: affirmed at 'BBB-'The rating actions have no impact on the ratings of the outstanding coveredbonds issued by Credit SuisseCredit Suisse Group AGLong-term IDR: affirmed at 'A', Outlook StableShort-term IDR: affirmed at 'F1'Viability Rating: affirmed at 'a'Support Rating: affirmed at '5'Support Rating Floor: affirmed at 'No Floor'Senior unsecured debt (including programme ratings): affirmed at 'A'/'F1'Senior market-linked notes: affirmed at 'Aemr'Subordinated notes: affirmed at 'A-'Preferred stock (ISIN XS0148995888): affirmed at 'BBB'Preferred stock (ISIN XS0112553291 and JPY30.bn issue): affirmed at 'BBB-'Credit Suisse International:Long-term IDR: affirmed at 'A', Outlook StableShort-term IDR: affirmed at 'F1'Support Rating: affirmed at '1'Senior unsecured debt (including debt issuance and CP programme ratings):affirmed at 'A'/'F1'Dated subordinated notes: affirmed at 'A-'Perpetual subordinated notes: affirmed at 'BBB'Credit Suisse (USA) Inc.:Long-term IDR: affirmed at 'A', Outlook StableShort-term IDR: affirmed at 'F1'Support Rating: affirmed at '1'Senior unsecured debt (including programme ratings): affirmed at 'A'Commercial paper programme: affirmed at 'F1'Subordinated notes: affirmed at 'A-'Credit Suisse NY (branch):Long-term IDR: affirmed at 'A', Outlook StableShort-term IDR: affirmed at 'F1'Senior unsecured debt (including programme ratings): affirmed at 'A'Commercial paper programme: affirmed at 'F1'Senior market-linked notes: affirmed at 'Aemr'Claudius Limited:Preferred securities: affirmed at 'BB+'Credit Suisse Group (Guernsey) I LimitedTier 2 Contingent Notes: affirmed at 'BBB-'Credit Suisse Group (Guernsey) II LimitedTier 1 Buffer Capital Perpetual Notes: affirmed at 'BB+'Credit Suisse Group (Guernsey) IV LimitedTier 2 Contingent Notes: affirmed at 'BBB-'
The ratings above were solicited by, or on behalf of, the issuer, and therefore,Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:Global Financial Institutions Rating Criteria(New York Ratings Team)