Goldman Sachs analysts also raised their recommendation for Deutsche Bank AG (DBK) to neutral from sell, citing the decline in its stock and its plan to issue shares.
Credit Suisse rose as much as 2.1 percent in trading today after Goldman Sachs analysts including Jernej Omahen said its shares were among the most undervalued in the industry.
The rise was the most since Credit Suisse settled a U.S. investigation of its role in helping Americans evade taxes. The settlement, announced after the close of trading on May 19, included a guilty plea and a fine of $2.6 billion. It resolved the last major litigation issue for Credit Suisse, Chief Executive Officer Brady Dougan said at the time.
The Swiss bank “offers one of the highest upsides amongst our coverage,” the analysts wrote. “We therefore upgrade the shares to buy and add it to our conviction list.”
Credit Suisse shares were up 1.6 percent to 26.76 francs at 12:20 p.m. in Zurich. At that price, it would have to rise 36 percent to reach the analysts’ 12-month price target of 36.50 francs. Goldman Sachs said its view was based on the bank’s current strategy.
Weak share performance, low expectations for profitability and low capital ratios are among factors that increase the chances of Credit Suisse adjusting its strategy, Goldman Sachs said. Its analysts see more potential for shares to rise if any such changes reduce the impact of investment banking on return on equity.
Goldman Sachs lowered its estimate of Credit Suisse’s earnings per share for this year to 2.58 Swiss francs ($2.87) from 2.73 francs, citing a slowdown in debt trading. The mean estimate of 31 analysts surveyed by Bloomberg is 2.11 francs.
The investment bank is weighing on the company’s return on equity, the analysts said, estimating the drag at about 5 percent. Credit Suisse’s return on equity, a measure of profitability, was 8 percent in the first quarter.
Credit Suisse says its common equity ratio at the end of the first quarter would have been 9.3 percent if the U.S. settlement were factored in. The bank lags 3.9 percentage points behind the biggest Swiss bank UBS AG (UBSN) in this measure, Goldman Sachs said.
“In our view, an external capital hike remains an option for CS,” the Goldman Sachs analysts said. “Additional source of capital generation would be welcome.”
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