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Archegos Capital-related woes are spilling into how credit-rating companies view the bank.
S&P Global Ratings lowered its outlook on Credit Suisse (ticker: CS) to negative from stable late on Tuesday. It reaffirmed its ‘A+/A-1’ rating on the bank.
Tuesday’s action from S&P comes as the bank warned on Monday that it expects to realize “highly significant and material” losses after a U.S.-based hedge fund defaulted on margin calls last week. Neither the Swiss bank not S&P identified the fund, but media reports have said it was Archegos Capital Management.
Archegos declined to comment on Monday.
Credit Suisse said it plans to update investors on the size of the losses later, but analysts have put the figure at as high as $4 billion. A loss that big could constrain Credit Suisse’s ability to return capital to shareholders this year. The estimated figure would account for almost half of the total loss that banks with exposure to Archegos are expected to face.
The debacle comes after Credit Suisse also found itself embroiled in the collapse of Greensill Capital, a firm focused on supply-chain financing. S&P also noted that Credit Suisse dealt with “high-profile governance issues” last year, which have hurt the bank’s reputation.
Credit Suisse didn’t immediately respond to a request for comment.
While S&P believes that Credit Suisse can absorb its recent losses, they expect they will “consume a material proportion of the 2021 results.” Equally important, the firm also raised concern over what the back-to-back scandals imply about the bank’s appetite for risk, as well as its risk management procedures.
“In our view, there is a meaningful risk that clarification of the reasons for a potential material loss related to a single client may reveal deficiencies in Credit Suisse group’s risk management system or a risk appetite that is not commensurate with the current ratings,” wrote Anna Lozmann, an analyst at S&P.
Credit Suisse shares dipped 3.6% in Wednesday’s trading, while the S&P 500 gained 0.5%.
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