Credit Suisse Stumble Exposes `Value Trap,' Morgan Stanley Says

  • Firm seen facing pressure to sell more of Swiss universal bank
  • Analyst: Unit's IPO may dilute earnings per share up to 20%

Credit Suisse Group AG’s surprise loss on illiquid trading positions, announced last month, may force the company to sell a larger stake in a unit than previously planned, according to Morgan Stanley.

The Zurich-based bank earmarked its Swiss universal bank for a partial initial public offering by the end of 2017. The trading debacle, which prompted the bank to say it may post a first-quarter loss, and other challenges could force the bank to put up more of the unit for sale, hurting future earnings, Morgan Stanley analysts led by Huw Van Steenis said in a note to clients on Thursday.

The loss is compounding pressure on the company as it carries out a difficult overhaul, seeking to bolster capital while bearing costs from honing its investment bank and leaning more on wealth management, he wrote. The pressures “suggest to us that CS could need to sell more” of the subsidiary, he wrote.

“Bottom line, we are concerned CS risks being a value trap” if those risks and challenges weigh on the stock, he said. He estimated the partial sale of the universal bank unit could dilute earnings per share by 10 percent to 20 percent.

Chief Executive Officer Tidjane Thiam pledged last month to accelerate the bank’s restructuring through deeper cost cuts and by eliminating an additional 2,000 jobs. The lender said at the time that its universal bank unit has “performed well” this year, with “resilient pretax income performance” expected in the first quarter.

Nicole Sharp, a New York-based spokeswoman for Credit Suisse, declined to comment on Van Steenis’s note.

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