Credit Suisse’s Main Unit Downgraded by Moody’s on Risk Failures

(Bloomberg) -- Credit Suisse Group AG had the credit rating for its main operations cut by Moody’s Investors Service following the twin hits from the collapse of Archegos Capital Management and Greensill Capital.

The long-term senior unsecured debt and deposit ratings of Credit Suisse AG, which houses the lender’s main investment banking and wealth management businesses, were lowered by one notch to A1 from Aa3, according to a statement Tuesday. At the same time, the Moody’s affirmed the Baa1 senior unsecured debt ratings of Credit Suisse Group.

The downgrade may raise borrowing costs for Credit Suisse as it seeks to navigate one of the most difficult periods since the financial crisis, after the Archegos debacle saddled it with billions of dollars in losses while the collapse of a suite of Greensill-linked funds damaged its reputation. New Chairman Antonio Horta-Osorio has pledged a thorough review and said the twin scandals went beyond any he’d lived through over three-and-a-half decades working at banks.

The downgrade reflects a higher-than-anticipated risk appetite and deficiencies in risk management and controls, Moody’s wrote. The bank’s financial position may further be strained by additional losses from those two events, it said.

“Although Moody’s anticipates that CS will enhance its governance and risk management practices, including implementing the recommendations resulting from internal and external investigations, the extent and effectiveness of these measures will remain uncertain for some time,” it said.

Moody’s also cited a change in its methodology for assessing bank risk as a reason for the downgrade. As a result, the rating company now believes that Credit Suisse AG has a weaker capacity to absorb unexpected losses.

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