LONDON – Credit Suisse needs to increase its capital this year to prepare for a potential worsening of the European debt crisis, Switzerland’s central bank said on Thursday.
The Swiss National Bank singled out Credit Suisse in its annual financial stability report as a bank that needs to “significantly expand its loss-absorbing capital during the current year.” Credit Suisse’s local rival, UBS, should just continue with its efforts to strengthen its capital, the central bank said.
Shares of Credit Suisse fell 10 percent in trading in Zurich on Thursday. UBS shares were down only slightly.
“Despite progress achieved, the big banks’ loss-absorbing capital is still below the level needed to ensure sufficient resilience given the high risks in the environment,” the central bank wrote in the report. “The big banks’ importance for the Swiss economy and for financial stability requires that they further strengthen their resilience.”
The central bank recommended that Credit Suisse consider suspending its dividend or raising capital by selling shares. Unlike UBS, Credit Suisse has continued to pay a dividend throughout the debt crisis.
Marc Dosch, a spokesman for Credit Suisse in Zurich, said the bank was already working to reduce its risk-weighted assets and its capital ratio was above current requirements.
Based on the new Basel III banking requirements, which are being phased in over the coming years, the capital strength of the two large Swiss banks was “below average for international big banks,” the central bank said. By the new measures, Credit Suisse’s loss-absorbing capital was about 5.9 percent of risk-weighted assets and 7.5 percent for UBS, the central bank wrote.
Analysts at JP Morgan Chase were skeptical that Credit Suisse would tap the stock market to raise capital and said the bank was more likely to continue to reduce risk-weighted assets at its investment banking operation.
“In addition, we stress the Swiss national bank is not the Swiss bank regulator”, which “has not expressed concerns of capital in their recent publications,” analysts Kian Abouhossein and Amit Ranjan wrote in a note to clients. (The Financial Market Supervisory Authority of Switzerland supervises Credit Suisse.)
The central bank analyzed Credit Suisse’s and UBS’s capital strength considering a worst-case scenario in which European countries, including Switzerland, and the United States would slip into a “deep recession” and economic growth in emerging markets would decline “sharply.”