What happened to Credit Suisse?

Along with earnings that caused another drop in the stock, Credit Suisse announced sweeping reforms to reorient the bank, including massive jobs cuts.
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Where did it all go wrong?

The drop in shares yesterday was just the latest move to the downside after the price had been falling since the start of last year. But that was more a symptom of an underlying issue, with the wealth management portion of the bank causing repeated losses and being involved in
scandals. The most extensive and most covered was the bank's exposure to the collapse of Greensill Capital and Archegos, resulting in over $5.5B loss.

Earlier in the quarter, the CEO had sent a letter to reassure employees of the company's solidity, but that backfired when it came to public attention and questioned why such comments were necessary. At the same time, it was revealed that the BOE was worried about the failure of a major bank. Credit Suisse hasn't failed so far, but it reported a loss of CFH3.5B larger than anticipated.

Where to now?

As part of the overhaul, the bank is looking to cut 9.0K jobs and get a cash infusion of CHF4.0B, with support from Saudi banks. Credit Suisse had already tried a minor overhaul at the end of 2021, but it wasn't enough to right-side the company. The rumours around the company have led to another problem: outflows. Another CHF12.9B in assets left the bank over the last three months, after 7.7B in the prior quarter. Adding to underperformance in assets, Credit Suisse lost around 50B in AuM in the previous reporting period.

Rising global interest rates, market volatility and demand for safe havens like the Swiss franc should have provided substantial outperformance for the bank. But losses in the wealth management division counteracted that and prevented the bank from taking provisions. Although capital equity ratios remain above requirements, it's still an open question whether the restructuring will restore confidence and stop the outflow of assets. An extra challenging proposition as the world heads into an expected recession.

Credit Suisse breaks wedge pattern

CS has been in a downward spiral this year, with all upside patterns printing retracements of some sort. The rising wedge pattern originating at 3.50 and completing at 4.90 suggests a bearish leg to 3.05 (S2). This is the wedge height added to the breakout point at 4.45. The downside action might extend below 3.00 so long we remain below 4.10, as chances hint at a fresh low. 3.50 (S1) must succumb to renewed pressures in advance.

If bulls retain prices above 3.50, or in case of a double bottom, the wedge swings will automatically become resistances. Once and if 5.00 (R1) is recaptured, 5.50 (R2) and 7.00 (R3 will come back into focus.

Key takeaways

Credit Suisse is in hot water because its share prices have been falling, it's been involved in a few scandals, and it reported a loss that was way bigger than expected. The firm is cutting 9,000 jobs as part of sweeping reform but also looking for another cash infusion as assets keep outflowing the bank. Despite a strong performance in some areas, losses in the wealth management division have prevented CS from taking provisions and restoring confidence as the world heads into a recession.