Credit Suisse business model flaws – high interest costs

Outstanding capital insturments of Credit Suisse according to this presentation.

According to my calculations (see table below) Credit Suisse pays over CHF 1 bn per year in interest rate costs alone. The coupon they need to pay is high. High risks demand high coupon.

So much profit has to be generated to just cover fixed costs. At the same time more and more peer-to-peer lending business models are springing up, robo-advisors, strong global competition. The Credit Suisse business model seems very challenging, that’s what the stock price and also credit rating tells you.

Do cantonal banks have these costs? Their share prices seem to be saying they have a lower cost and lower risk business model.  Makes you wonder why customers should even bother having assets with a riskier, negative news-flow company.

Table of AT (Additional Tier) 1 instruments:

Currency Nominal in m iCoupon Interest pa CHF interest
USD 2000 6.50% 130.0 128.05
EUR 1250 5.75% 71.9 77.98
CHF 290 6.00% 17.4 17.40
USD 2250 7.50% 168.8 166.22
USD 2500 6.25% 156.3 153.91
USD 2000 7.88% 157.5 155.14
CHF 750 7.13% 53.4 53.44
CHF 2500 9.00% 225.0 225.00
USD 1720 9.50% 163.4 160.95
USD 1725 9.50% 163.9 161.42
CHF 390 0.00% 0.0
as of Q1 2016 1307.49 1299.50
as of Q3 2016 1149.99 1144.36
USDCHF 0.9850
EURCHF 1.0850

FINMA could save Credit Suisse a billion by invoking their right:

Credit Suisse will be prohibited from making any AT1 interest payment if:

– Distributable profits are less than the aggregate amount of AT1 interest payments

– FINMA prohibited such interest payment

– Minimum regulatory requirements are not met

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