Scope Ratings has today placed Credit Suisse AG’s and Credit Suisse Group’s AG’s A+ long-term ratings and the various Additional Tier 1 (AT1) and Tier 2 (T2) ratings (listed at the end of this press release) on review for possible downgrade. A negative outlook on issuer and senior debt ratings has been in place since May 2014. The bank’s S-1 short-term rating and its stable outlook were not under review and are confirmed.

The rating review will consider the impact on Credit Suisse’s credit fundamentals and business-model characteristics of (i) persisting conduct-risk challenges mostly in the US market – against the backdrop of US operations carrying a larger weight in Credit Suisse’s consolidated activities compared to other peers, and (ii) the likelihood of more stringent leverage ratio requirements. Ongoing headwinds for wholesale and investment banking activities should inherently place a relatively higher burden of revenue delivery on private banking activities at the time when the latter are not in a sustained growth dynamic.

That said Scope adds that it views Credit Suisse as continuing to display healthy prudential and financial fundamentals, pointing out that it has managed to navigate relatively well the financial crisis years -- unlike other peers with similarly large wholesale and investment banking activities. Nevertheless, focusing on the rating review being initiated, Scope highlights that these positive characteristics are currently being tested by the combination of at least two factors:

• Persistence of conduct-risk challenges (mostly stemming from legacy issues). When Scope changed the rating outlook of Credit Suisse to negative from stable in May 2014, following the settlement on all US cross-border matters, it said it would “pay particular attention to the consequences of a guilty plea on the reputation of the bank, on the evolving behaviour of its counterparties and ultimately on its overall franchise”. Since then though, conduct issues resurfaced through the decision of a New York State Supreme Court Justice rejecting Credit Suisse’s request to dismiss a lawsuit in connection with the creation and sale of a portfolio of 64 RMBSs. This decision (announced in December 2014) adds more uncertainty to potential contingent liabilities linked to this court case, and overall to conduct-risk issues related to the bank, especially since US-based operations carry a large weight in Credit Suisse’s overall activities, compared to other peers.

• The likelihood of more stringent leverage ratio requirements for the two Swiss G-SIBs. While Scope considers that Credit Suisse continues to have the means to organically grow its capital base, more stringent leverage ratio requirements from Swiss regulatory authorities are likely to put further pressure on the bank’s investment banking operations. This in turn would lead to further asset reductions in this business, more than was initially anticipated, in particular if the benchmark leverage ratio of close to 5% or higher is adopted under Swiss law. In its review, Scope will analyse the impact of Credit Suisse’s recently announced leverage exposure-reduction target on the profitability of the investment bank.

Scope cautions that the recent regulatory and supervisory developments may have overall proven more disruptive for Credit Suisse’s business model than for other peers’, as the bank’s profitability is very materially geared toward wholesale and investment banking. At the same time, revenue growth in private banking is also likely to remain under pressure due to the relatively challenging macro and regulatory/policy aspects which are likely to persist.

Scope highlighted above headwinds should be mitigated by the very favourable liquidity and funding profile of the bank, its relatively low credit risk profile and the quality and mix of its business books – which also include a large retail banking franchise in Switzerland.

Scope expects to conclude its review towards the end of Q1 or the beginning of Q2 2015 – some time after the publication of the 2014 Annual Report (planned for March 20).

. The outcomes of the rating review would be the following:
• Downgrade of the long-term rating to A with stable outlook
• Downgrade of the long-term rating to A with negative outlook
• Confirmation of the A+ rating and its negative outlook;

The following ratings were placed under review for possible downgrade:

- Issuer credit-strength rating (ICSR) of A+ (for both Credit Suisse AG and Credit Suisse Group AG)
- Senior unsecured debt ratings of A+ (for both Credit Suisse AG and Credit Suisse Group AG)
- Tier 2 securities ratings of A (Credit Suisse AG)
- T2 securities ratings of BBB+ (Credit Suisse Group AG)
- AT1 securities ratings of BBB- (Credit Suisse Group AG)
- AT1 securities of BBB (Credit Suisse Group AG).

Confirmed with a stable outlook were Credit Suisse AG’s and Credit Suisse Group AG’s S-1 short-term ratings.