Credit Suisse Stock Buybacks 'Directly Affected' By Hedge Fund Liquidation: Analyst

Credit Suisse Group AG CS shares were losing ground Monday after the bank warned investors that its first-quarter earnings could take a big hit due to the unwinding of a U.S. hedge fund.

The near-term uncertainty was enough for at least one Wall Street analyst to downgrade Credit Suisse on Monday.

The Credit Suisse Analyst: BofA Securities analyst Alastair Ryan downgraded Credit Suisse from Buy to Neutral and cut the price target for the bank’s Swiss-listed shares from $14.91 to $13.31.

Related Link: BofA Upgrades CME Group, Bank Of NY Mellon On Expectations For Rising Interest Rates

The Credit Suisse Takeaways: Credit Suisse and Nomura both issued updates for investors after the two banks were reportedly forced to exit large positions in a U.S. hedge fund that defaulted on margin calls last week. The hedge fund in question is reportedly Archegos Capital Management.

Investment banks including Goldman Sachs Group Inc GS, Morgan Stanley MS and Deutsche Bank AG DB reportedly forced Archegos to liquidate its positions on Friday, which triggered sharp drops in some of its top holdings, including ViacomCBS Inc. VIAC and Discovery Inc DISCK.

In the downgrade note, Ryan said Credit Suisse’s exposure to Archegos is just the latest in a series of missteps by the company that have put its 2021 buybacks at risk.

“After the series of issues the group has faced in recent months, across Greensill, mortgage backed securities litigation and a hedge fund write-down, we believe its capital cushion has likely been reduced to the point where its buyback is directly affected,” he said.

In fact, BofA also reduced its 2021 Credit Suisse buyback forecast by about $533 million.

Ryan said Credit Suisse’s attractive valuation should provide support for the stock, but the bank simply has too many problems for investors to ignore at this point.

Benzinga’s Take: Until the full degree of the losses is disclosed publicly, there’s no reason for investors to take a risk on Credit Suisse when there are plenty of other attractive bank stocks out there.

The Archegos-driven sell-off may ultimately prove to be an attractive long-term entry point for Credit Suisse investors, but there’s no way to know just how large the losses will be and just how much more downside the stock could have in the near-term.

Credit Suisse's Zurich headquarters. Photo by Roland zh via Wikimedia.