DBRS Morningstar Takes Follow-Up Rating Actions on Credit Suisse Following Sale to UBS

DBRS Ratings Limited (DBRS Morningstar) has withdrawn the Long-Term and Short-Term Issuer ratings of Credit Suisse Group AG (Credit Suisse, CSG or the Group), Credit Suisse AG (the Bank), Credit Suisse (USA), Inc., following the Selective Default (SD) rating actions taken on these Issuer ratings on 23rd March 2023.

DBRS Morningstar has subsequently assigned new Long-Term and Short-Term Issuer ratings to the Group, the Bank and Credit Suisse (USA), Inc., which have been equalized to the ratings of UBS AG, at AA (low)/R-1 (middle). The long-term ratings are Under Review with Negative implications (URN) in line with UBS AG’s long-term ratings.

In addition, DBRS Morningstar has upgraded the Subordinated Debt ratings of Credit Suisse AG, Credit Suisse (USA), Inc., to ‘A’ from BB (high) Under Review Developing, as well as the Subordinated Debt ratings of Credit Suisse Group Finance (Guernsey) Limited and Credit Suisse Group Finance (U.S.), Inc. to ‘A’ from BB Under Review Developing, and subsequently discontinued/withdrawn them for business purposes.

See the full list of ratings in the table at the end of this press release.

KEY RATING CONSIDERATIONS

DBRS Morningstar has withdrawn the Issuer ratings on the Group, the Bank and Credit Suisse (USA), Inc. These ratings had been downgraded to Selective Default (SD) on 23rd March 2023 following the write-down of the Group’s AT1 securities (unrated by DBRS Morningstar). DBRS Morningstar viewed the write-down as a ‘Selective Default’ as DBRS Morningstar expects Credit Suisse to continue to meet in a timely manner other obligations on other classes of securities. DBRS Morningstar is subsequently assigning new Issuer Ratings to the Bank, the Group, and Credit Suisse (USA), Inc in line with UBS AG’s ratings.
In addition, following clarification that Credit Suisse’s subordinated debt is not going to be bailed in, DBRS Morningstar has upgraded the Subordinated Debt ratings in line with the normal notching for subordinated debt in Europe, and then discontinued/withdrawn them for business purposes.

DBRS Morningstar applies a SA1 support designation to all Credit Suisse’ entities to reflect the expectation of strong and predictable support from UBS. The Swiss government has exercised its emergency powers to facilitate a swift execution of a merger between UBS and Credit Suisse without the necessity for shareholder approval, and therefore DBRS Morningstar expects the transaction to be completed in accordance with plans.

RATING DRIVERS

An upgrade would likely be linked to an improvement in UBS’s long-term debt ratings. Alternatively, a downgrade of UBS’s ratings would also likely negatively impact Credit Suisse’s ratings.

Any indication of a reduction of support from UBS could impact DBRS’s support assessment, and potentially have a negative impact on Credit Suisse’s ratings.

RATING RATIONALE

On March 19, 2023, UBS announced it will acquire Credit Suisse in full. This followed close coordination with the Swiss Financial Markert Authority (FINMA), the Swiss Confederation and the Swiss National Bank (SNB). DBRS Morningstar now applies a SA1 support designation to Credit Suisse to reflect DBRS Morningstar’s expectation of strong and predictable support from UBS. Therefore, DBRS Morningstar withdrew Credit Suisse’s separate Intrinsic Assessment (IA).

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Governance (G) Factors

DBRS Morningstar views Business Ethics and Corporate Governance as Relevant rating factors for UBS’ ratings.

DBRS Morningstar notes UBS is taking on Credit Suisse’s liabilities/outstanding litigations, but DBRS Morningstar’s understanding is that they have been adequately reserved. We also note that approximately CHF 56 billion of badwill were recognised (including equity from AT1 write-down) to count towards CET1 capital.

At present, there are two major outstanding cases for UBS: (i) the French tax case and (ii) the RMBS case in the US. (i) In February 2019, a French court found the Group guilty of unlawful solicitation of clients on French territory and aggravated laundering of the proceeds of tax fraud. The Group has appealed the case twice. The fine and confiscation imposed by the Court of Appeal are suspended during the appeal. At end-2022, The Group has provisioned EUR 1.1 billion (up from EUR 450 million initially) for this case. (ii) The second one is related to legacy RMBS in the US. In November 2018, the US Department of Justice filed a civil complaint relating to the issuance, underwriting and sale of 40 RMBS transactions in 2006 and 2007. Our expectation is that the final economic and reputational impact of these cases will be manageable for the Group.

There were no Environmental or Social factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at May https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022)

Notes:
All figures are in CHF unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations https://www.dbrsmorningstar.com/research/398692/global-methodology-for-rating-banks-and-banking-organisations (23 June 2022). In addition DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (17 May 2022) in its consideration of ESG factors.

The sources of information used for this rating include Morningstar Inc. and Company Documents, CSG FY 2022 Annual Report, CSG FY 2022 Presentation, CSG FY 2022 Press Release, CSG Q1-Q4 2022 Quarterly Earnings, CSG Q3 2022 Strategy Update, Swiss Financial Market Supervisory Authority (FINMA): “FINMA approves merger of UBS and Credit Suisse”, SNB: “Swiss National Bank provides substantial liquidity assistance to support UBS takeover of Credit Suisse”, The Swiss Federal council: “Safeguarding financial market stability: Federal Council welcomes and supports UBS takeover of Credit Suisse”. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and ratings are under regular surveillance.

This rating is under review. Generally, the conditions that lead to the assignment of reviews are resolved within a 90-day period. DBRS Morningstar reviews and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage: https://www.fca.org.uk/firms/credit-rating-agencies.

The sensitivity analysis of the relevant key rating assumptions can be found at: https://www.dbrsmorningstar.com/research/412153

This rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Vitaline Yeterian, Senior Vice President, Global FIG
Rating Committee Chair: Elisabeth Rudman, Managing Director, Global FIG
Initial Rating Date: September 13, 2006
Last Rating Date: March 22, 2023

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