Scope Ratings has today downgraded Credit Suisse Group AG’s and Credit Suisse AG’s issuer and senior debt ratings to ‘A’ from ‘A+’ with a Stable Outlook, following the completion of its review for possible downgrade initiated on 25 February 2015. Ratings on the bank’s additional Tier 1 (AT1) and Tier 2 (T2) securities were also downgraded (see details at the end of this press release). Credit Suisse Group AG’s and Credit Suisse AG’s S-1 short-term ratings and their Stable Outlook were confirmed.

The rating action reflects Scope’s belief that the evolving too-big-to-fail (TBTF) rules in Switzerland, as well as more stringent leverage ratio requirements, could potentially put pressure on the profitability of Credit Suisse’s investment banking operations following further asset reduction in this business. Credit Suisse has already announced a USD 150-170bn reduction of its exposure measure in investment banking by YE 2015, corresponding to a 20% reduction in its exposure measure from December 2014 levels.

Scope added that in view of Credit Suisse’s higher dependency on investment banking compared to peers -- at 51% of total group revenues as of YE 2014 -- the overall dynamics of the bank’s business model could change, with more emphasis on wealth management. However, the agency cautioned that altering the bank’s business model will remain challenging, as the wealth management business of Credit Suisse is somewhat smaller than the one of its major domestic peer, and material external growth opportunities in private banking are hard to come by. Potentially, resolute external growth in wealth management could initially cost the bank in terms of capital expenditures, while a material shrinkage of the investment bank could have some negative impact on profits.

At the same time, the agency pointed out that in the course of its ratings review it determined that the persistence of conduct-risk challenges, stemming mostly from legacy issues, was manageable, with an overall maximum uncovered contingent liability disclosed by the company of CHF 1.8bn, representing 63bps of CET1 capital.

Pointing to the rating remaining solidly anchored in the A category, Scope highlighted that it views Credit Suisse as continuing to display healthy prudential and financial fundamentals, even if the low risk-weighted asset intensity of the bank could lead to more acute deleveraging efforts in future.

The following ratings were downgraded, all now with Stable Outlook:

Issuer credit-strength rating (ICSR) to A from A+ (for both Credit Suisse AG and Credit Suisse Group AG)
Senior unsecured debt ratings to A from A+ (for both Credit Suisse AG and Credit Suisse Group AG)
T2 securities ratings to A- from A (Credit Suisse AG)
T2 securities ratings to BBB from BBB+ (Credit Suisse Group AG)
AT1 securities ratings to BB+ from BBB- (Credit Suisse Group AG)
AT1 securities to BBB- from BBB (Credit Suisse Group AG)

Confirmed with Stable Outlook were Credit Suisse AG’s and Credit Suisse Group AG’s S-1 short-term ratings.