Credit Suisse Set for More Pain

Credit Suisse, historic share low, Tidjane Thiam,

(Picture: Shutterstock)

Credit Suisse's share price has fallen under the psychologically important 10-Swiss-franc barrier for the first time in its history. finews.asia gives five reasons why shareholders will continue to feel the pain.

No matter how often Credit Suisse CEO Tidjane Thiam insists that the bank is in a more secure position than it has been for years, his warnings seem to fall on deaf ears in the stock market. Shares in the banking giant briefly traded below 10 francs Wednesday – their lowest-ever level.

The share price quickly snapped back, but the damage was done. With the breach of the psychologically-important barrier the stock could be pulled into a downward spiral whose depths will be difficult to imagine from today’s perspective. The reasons for this are as follows:

1. Market Automation

In real terms it doesn’t make any difference if a stock is recorded at 10 or 9.99 francs. But round figures play an important role to the psyche of investors. Many investors will have placed a stop-loss order at the 10-franc mark. The consequences: sell-offs prompt more investors to follow. And the price comes under renewed pressure.

2. Index Threat

Credit Suisse runs the risk of getting dumped from the Stoxx Europe 50, newswire «AWP» reported citing Landesbank Baden-Wuerttemberg. The bank’s stock has fallen sharply against other European bluechip stocks and if it doesn’t recover into the top 74 of its peers, it will be «fast-exited,» according to the brokerage.

Leaving the European blue-chip index could mean another wave of massive pressure on Credit Suisse’s stock: many index funds replicate the Stoxx Europe 50, and would also sell Credit Suisse as a result.

3. Major Investors’ Reactions

Credit Suisse’s major investors like Qatar’s sovereign wealth fund or the Saudia Arabia-based Olayan Group have been united in their support of Thiam’s strategy so far. Harris Associates has even used recent share price weakness to ramp up its position.

Now, some investors in Britain and the Middle East are selling the stock, «AWP» reported, citing traders. Large investors are rumored to be abandoning the stock – if this is true, it means the phalanx supporting Thiam is beginning to wobble.

4. Dismantling of a CEO

Chairman Urs Rohner recently reinforced his support of the CEO, but the share price drop is undermining Thiam’s strategy. Credit Suisse was worth 26 Swiss francs per share when he was installed almost exactly one year ago.

Investors are increasingly showing their nerves. Major investor David Herro was quoted in the New York Times effectively directing Thiam to take a more diplomatic tone with employees. A prominent survey gave the CEO an a failing grade.

5. Fear of the Future

Thiam has to be credited with bringing a fresh vigor into Credit Suisse with a strategic review in October, which addressed urgent investor concerns and swept out old networks. If Thiam were to leave, the bank would succumb to a strategy vacuum since the CEO has the support of investors for his overhaul.

There is no apparent Plan B.

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