BofA Downgrades Credit Suisse Again: Archegos Losses 'Double What We Expected'

Credit Suisse Group AG CS shares traded lower Tuesday morning after the bank announced a $4.7-billion charge tied to the meltdown of U.S. hedge fund Archegos Capital.

One Wall Street analyst responded by downgrading Credit Suisse for the second time in just over a week.

The Credit Suisse Analyst: BofA Securities analyst Alastair Ryan downgraded Credit Suisse from Neutral to Underperform and cut his price target for the company’s Swiss-listed shares from $12.19 to $10.69.

Related Link: BofA Cuts Credit Suisse Price Target For Second Time In 3 Days

The Credit Suisse Takeaways: Tuesday’s downgrade represents BofA's second downgrade and third price target cut for Credit Suisse in the last two weeks as details emerge about the bank’s exposure to Archegos that are worse than feared. 

The $4.7-billion charge was more than double what Ryan previously anticipated, the analyst said Tuesday.

Investment bank CEO Brian Chin and chief risk and compliance officer Lara Warner have already resigned, and Ryan said a loss of this size will likely result in a complete corporate restructuring at Credit Suisse.

“After a loss of this magnitude on an exposure where we believe risk appetite was likely in the range of CHF0.1bn, we expect new management at the investment bank and in risk to review many aspects of the investment bank client franchise and risk appetite,” he said. 

Credit Suisse said Tuesday that the company is now anticipating a first-quarter pre-tax loss of around $960.4 million.

BofA is expecting that fallout from the fiasco will have a lasting impact on earnings and capital returns, Ryan said. 

On Tuesday, Credit Suisse proposed a cut to its 2.7% dividend.

Ryan cut his 2021 and 2021 EPS estimates from 94 cents and $1.42 to 65 cents and $1.30, respectively. In addition, he cut his 2021 dividend per share estimate by nearly 65% from 31 cents to just 11 cents.

Benzinga’s Take: The silver lining Tuesday for Credit Suisse investors: they finally know exactly how big the losses from Archegos will be.

Plenty of uncertainty remains surrounding the lasting impact of the disaster, including the hunt for new management and possible changes to the bank’s risk management that could impact its future earnings power.

Related Link: BofA Cuts Credit Suisse Price Target For Second Time In 3 Days

Watch a discussion on Credit Suisse's losses from Tuesday's "PreMarket Prep" show: