May 16, 2013 / 8:16 PM / in 5 years

Fitch Affirms Credit Suisse at 'A'; Outlook Stable

(The following statement was released by the rating agency) MILAN/LONDON, May 16 (Fitch) Fitch Ratings has affirmed Credit Suisse AG's Long-term 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', Support Rating at '1' and Support Rating Floor (SRF) at 'A'. At the same time, Fitch affirmed the ratings of Credit Suisse's subsidiaries and holding company and of its issues. A full list of rating actions is at the end of this rating action commentary. The rating actions on Credit Suisse have been taken in conjunction with Fitch's Global Trading and Universal Bank (GTUB) periodic review. Fitch's outlook for the industry is stable. Positive rating drivers include improved liquidity, funding, capitalisation and more streamlined businesses, all partly driven by regulation. Offsetting these positive drivers are substantial earnings pressure, regulatory uncertainty and heightened legal and operational risk. KEY RATING DRIVERS - IDRS, VR AND SENIOR DEBT The affirmation of Credit Suisse's VR and IDR reflect the bank's operations as a global investment bank and wealth manager with a solid domestic retail and commercial banking franchise. Credit Suisse raised new capital in 2012, which together with the aggressive reduction of risk-weighted assets (RWA) and retention of earnings resulted in stronger capitalisation. Following these actions and pending divestments, Credit Suisse's Fitch Core Capital ratio and regulatory capital ratios measured under Basel III RWA are within the peer group range. KEY RATING SENSITIVITIES - IDRS, VR AND SENIOR DEBT Credit Suisse's Long-term IDR is on Stable Outlook, Fitch expects the bank to continue to concentrate on its core segments in investment banking, which will continue to be the group's main risk centre. The group has reduced various market risk metrics and has a solid track record in managing the related risks, and as a consequence Fitch expects lower volatility in the investment bank's earnings particularly in periods of stress. Nevertheless, in the agency's opinion, investment banking activities give rise to material market and operational risks, which are captured in Credit Suisse's VR. The high weighting of investment banking in Credit Suisse's risk profile and earnings mix means that an upside to the bank's VR is unlikely in the near term. Fitch views positively the reduced market risk exposure in the investment bank, where Basel III RWA declined by about 43% between end-December 2010 and end-March 2013 (in USD terms). The aggressive RWA reduction has weighed on earnings in recent years, however losses on wind-down activities were immaterial in Q113 and the budgeted FY13 CHF400m burden is manageable. Credit Suisse's VR would come under pressure if the bank materially increased its investment banking risk appetite, which Fitch currently does not expect, or if it was unable to maintain earnings volatility at moderate levels. The VR benefits from Credit Suisse's strong non-investment banking operations, including wealth management, which provide the bank with a more stable source of earnings. With assets under management in the wealth management division of CHF836bn at end-March 2013, Credit Suisse is one the world's largest wealth managers. The bank's VR is sensitive to any material and structural changes in the size of its wealth management operations. Credit Suisse's VR reflects Fitch's expectation that the bank will maintain strong capital ratios. Swiss regulations will require Credit Suisse to operate with a minimum 10% Swiss core capital ratio, similar to Basel III but including certain preferred notes, by 2019, however the bank expects to reach this level by mid-2013. In addition, the bank will have to hold up to 9% of loss-absorbing capital, which can be in the form of contingent convertible instruments. Credit Suisse's capitalisation has been improved materially by capital raising initiatives implemented in 2012, including the issuance of CHF3.8bn of mandatory capital which has since converted into common equity. As a result, Credit Suisse reported a Basel III common equity Tier 1 (CET1) ratio of 8.6% at March 2013, which will rise to 8.8% pro forma for measures still pending (including announced disposals). This level is within the peer group range. Furthermore, Credit Suisse's Basel III ratios are now their primary regulatory measure and therefore subject to increased regulatory scrutiny compared with banks in other jurisdictions that instead provide estimates of Basel III ratios. The increase in equity has also reduced balance sheet leverage, although it remains high compared to peers. Fitch expects the bank to continue its balance sheet reduction, which should result in an improved leverage ratio. The generally solid quality of assets and the group's strong funding mitigates the high leverage. Furthermore, Fitch expects the bank's capital to be sufficient to meet "fully-loaded" leverage requirements under Basel III, which include certain off-balance sheet items, ahead of time, partly because these include contingent notes in addition to common equity in the capital component. In addition to its CET1 capital, the bank has about CHF4.3bn contingent convertible notes, which convert into common equity if the group's CET1 ratio falls below 7%. Fitch has assigned 100% equity credit to the Tier 1 contingent convertible notes and 50% equity credit to the Tier 2 note and considers this buffer positive for the bank's VR as it provides further protection for senior creditors. Failure to reach and maintain strong capital ratios would put pressure on Credit Suisse's VR. Fitch considers Credit Suisse's liquidity strong as it benefits from a large and historically stable customer funding base, and the bank estimates a net stable funding ratio of above 100%. Liquidity is managed centrally, and Credit Suisse maintains a large pool of liquid assets, partly driven by stringent Swiss regulatory requirements. At end-March 2013, the bank reported CHF135bn of cash, securities accepted under central bank facilities and other liquid securities. Deterioration in liquidity would put the VR under pressure. Credit Suisse's Long-term IDR is at its SRF, which means that a downgrade of its VR would only trigger downgrades of the IDRs if the SRF were revised down as well. KEY RATING DRIVERS - SUPPORT RATING AND SRF The affirmation of Credit Suisse's Support Rating and SRF is based on Fitch's view that the probability of support from the Swiss authorities for Credit Suisse, if required, remains extremely high in the near term due to the bank's systemic importance. RATING DRIVERS AND SENSITIVITIES - SUPPORT RATING AND SRF Credit Suisse's Support Rating and SRF are sensitive to a change in Fitch's assumptions around the availability of sovereign support for the bank. There is a clear political intention to ultimately reduce the implicit state support for systemically important banks in Europe and the US, as demonstrated by a series of policy and regulatory initiatives aimed at curbing systemic risk posed by the banking industry. This might result in Fitch revising SRFs downwards in the medium term, although the timing and degree of any change would depend on developments with respect to specific jurisdictions. Until now, senior creditors in major global banks have been supported in full, but resolution legislation is developing quickly and the implementation of creditor "bail-in" is starting to make it look more feasible for taxpayers and creditors to share the burden of supporting large, complex banks. KEY RATING DRIVERS AND SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated debt and other hybrid capital issued by Credit Suisse, Credit Suisse Group AG and by various issuing vehicles are all notched down from the VRs of Credit Suisse or Credit Suisse Group AG in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Their ratings are primarily sensitive to any change in the VRs of Credit Suisse or Credit Suisse Group AG. KEY RATING DRIVERS AND SENSITIVITIES - HOLDING COMPANY Credit Suisse Group AG's IDRs and VR are equalised with those of Credit Suisse and reflect its role as the bank holding company and the modest double leverage of 100% at end-2012 at holding company level. Fitch could notch the holding company's IDRs and VR below Credit Suisse's ratings if double leverage at Credit Suisse Group AG increased above 120% or if the role of the holding company changed, which Fitch currently does not expect. Credit Suisse Group AG's Support Rating and SRF reflect Fitch's view that support from the Swiss authorities for the holding company is possible, but cannot be relied on. As Credit Suisse AG's SRF is 'No Floor', the holding company's Long-term IDR is driven purely by its VR and is therefore primarily sensitive to the same drivers as Credit Suisse's VR. KEY RATING DRIVERS AND SENSITIVITIES - SUBSIDIARIES AND AFFILIATED COMPANIES Credit Suisse International is a UK-based wholly-owned subsidiary of Credit Suisse Group AG, and Credit Suisse (USA) Inc. (CSUSA) is the group's main US-based broker-dealer. Their IDRs are equalised with Credit Suisse's and reflect support from their parent as Fitch views them as core to the group's strategy in its 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 it would receive support from its parent if needed. In H112, Credit Suisse International restructured its capital base, redeeming subordinated debt placed with its parent with participating shares placed with the parent, thereby improving the quality of its capital. CSUSA's parent companies (Credit Suisse and Credit Suisse Group AG) in 2007 issued full, unconditional and several guarantees for the firm's outstanding SEC registered debt securities, which in Fitch's opinion demonstrate the role of the subsidiary and the extremely high probability that the firm would be supported if needed. The rating actions are as follows: Credit Suisse: Long-term IDR: affirmed at 'A', Outlook Stable Short-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 covered bonds issued by Credit Suisse Credit Suisse Group AG Long-term IDR: affirmed at 'A', Outlook Stable Short-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 Stable Short-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 Stable Short-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 Stable Short-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 Limited Tier 2 Contingent Notes: affirmed at 'BBB-' Credit Suisse Group (Guernsey) II Limited Tier 1 Buffer Capital Perpetual Notes: affirmed at 'BB+' Credit Suisse Group (Guernsey) IV Limited Tier 2 Contingent Notes: affirmed at 'BBB-' Contact: Primary Analyst Christian Scarafia Senior Director +39 02 87 90 87 212 Fitch Italia S.p.A. V.lo Santa Maria alla Porta, 1 20123 Milan Secondary Analyst Matthew Clark Director +44 20 3530 1225 Committee Chairperson Gordon Scott Managing Director +44 20 3530 1075 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com; Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable Criteria "Global Financial Institutions Rating Criteria" dated 15 August 2013, "Assessing and Rating Bank Subordinated and Hybrid Securities" dated 5 December 2013, "Evaluating Corporate Governance" dated 12 December 2012 and "Rating FI Subsidiaries and Holding Companies" dated 10 August 2012 are available on www.fitchratings.com. Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here Assessing and Rating Bank Subordinated and Hybrid Securities here Evaluating Corporate Governance here Rating FI Subsidiaries and Holding Companies here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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