By Steve Gelsi
Citigroup Inc. analyst Keith Horowitz says jitters about systemic risks posed by Swiss banking giant Credit Suisse appear to be overblown.
“We don’t see cause for concern,” Horowitz said in a flash research note late Sunday, in the wake of fresh speculation about potential capital raising or deeper problems at Credit Suisse /zigman2/quotes/202835784/composite CS -2.52% /zigman2/quotes/205269278/delayed CH:CSGN -2.59% .
With Credit Suisse having been deemed one of 30 systematically important global banks, it’s a given that investors would ponder its impact on the broader financial system. But Wall Street seemed to shrug off these concerns, at least for the moment, as most big banks joined in an overall surge in equities /zigman2/quotes/210599714/realtime SPX +0.02% following bruising selloffs in recent sessions.
Shares of JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM +0.80% rose 2.2%, Bank of America Corp. /zigman2/quotes/200894270/composite BAC +0.50% advanced by 2.5%, Citigroup /zigman2/quotes/207741460/composite C +0.61% rose by 1.1%, Morgan Stanley /zigman2/quotes/209104354/composite MS +0.91% moved up by 2%, Wells Fargo & Co. /zigman2/quotes/203790192/composite WFC +0.82% jumped 3.3%, and Goldman Sachs Group Inc. /zigman2/quotes/209237603/composite GS +0.18% rose 1.9%.
U.S.-listed shares of Credit Suisse were up 2%.
Citigroup analyst Horowitz said Citi has received inquiries about the “contagion impact” on U.S. banks given “recently headlines about a large European bank.”
Shares of Credit Suisse have come under pressure as investors reacted to prices of the banking firm’s credit-default swaps, which amount to bets on whether a debt issuer will survive.
On Friday, Credit Suisse’s five-year credit-default-swap spread widened to 250, its worst level since 2009.
U.S.-based banks’ CDS spreads have also widened in recent weeks, but Horowitz noted that the moves are not outsized relative to the overall investment-grade market. “We believe the U.S. bank stocks are very attractive here,” Horowitz said. “We understand the nature of the concerns, but the current situation is night and day from 2007 as the balance sheets are fundamentally different in terms of capital and liquidity, and we struggle to see something systemic.”
Compared with the time of the collapse of Lehman Brothers that helped trigger the global financial crisis, U.S. banks now hold significantly more capital, Horowitz said.
From the archives (August 2009): Credit-default swaps put turbulent past behind —mostly
Liquidity positions remain strong in the wake of the U.S. Federal Reserve’s quantitative easing policies that boosted deposits, he said. Banks also hold “significant reserves” against all credit risk, he said.
Meanwhile CFRA analyst Firdaus Ibrahim reiterated a sell rating on Credit Suisse and reduced his price target and profit forecasts for the bank.
As Credit Suisse ponders its future, Ibrahim said options rumored to be in the mix include exiting or selling its U.S. investment-banking business, the creation of a “bad bank” to hold its riskier assets and a capital raise of some kind.
“We believe that the negative sentiment surrounding the stock will not abate any time soon and believe its share price will continue to be under pressure,” he said. “A convincing restructuring plan will help, but we remain skeptical, given its poor track record of delivering on past restructuring plans.”