Bond Market News

Moody’s downgraded the long-term senior unsecured debt and deposit ratings of Credit Suisse AG (CS) by one notch to A1 from Aa3. Moody’s also changed the outlook on Credit Suisse Group AG to stable from negative. The rationale for the downgrade reflected revisions to Moody’s “Advanced Loss Given Failure (Advanced LGF) framework, applied to banks operating in jurisdictions with Operational Resolution Regimes, following the publication of Moody’s updated Banks Methodology on 9 July 2021.” Moody’s said that the capital instruments that were likely to provide CS with equity-like loss absorption before the point of non-viability led to the removal of equity credit for high-trigger AT1s from going-concern capital. This has reduced CS’s capacity to absorb unexpected losses, weakening solvency.

The Archegos and Greensill episodes were another binding factor for the downgrade. CS said its clients could lose upto $3bn on Greensill funds in late March and revealed a $4.7bn loss from Archegos Capital in early April. Moody’s also cited (a) higher-than-anticipated risk appetite and deficiencies in risk management and risk awareness and related control processes and frameworks, (b) the additional strain on the bank’s financial profile, (c) potential for client defections and franchise impairment.

CS’s bonds were unchanged – its 4.5% 2049s were at 99.5, yielding 4.6%

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