Credit Suisse hits 15-year low and the phoenix of energy Credit Suisse hits 15-year low and the phoenix of energy Credit Suisse hits 15-year low and the phoenix of energy

Credit Suisse hits 15-year low and the phoenix of energy

Equities 6 minutes to read
Peter Garnry

Head of Saxo Strats

Summary:  Credit Suisse is the story of a long string of bad decisions but also a structurally weak European banking sector that 14 years after the Great Financial Crisis is still struggling with return on equity being above the cost of equity over an entire economic cycle. While financials in many ways are taking the elevator down, the energy sector is being catapulted back into a proper size of the overall equity market with Exxon Mobil as an example being up 71% this year and now the 11th biggest US publicly listed company on market value.


Does Credit Suisse profit warning paves the way for a takeover?

It is hard to remember when we were positive on European banks except for rare tactical cases. European banks remain structurally weak and yesterday’s profit warning from Credit Suisse indicating a potential loss in Q2 proves the point. Credit Suisse will likely see its investment bank division delivering a third straight quarterly loss driven by market share losses across all business lines. The Swiss bank has been hit over the years from the spectacular blow-up of the hedge fund Archegos and the collapse of its supply chain finance partner Greensill Capital. The bank came out with a long list of excuses for why the bank was doing badly from geopolitical tensions to abrupt changes to monetary policy.

The cold hard facts are that Credit Suisse has relentlessly destroyed shareholder value since the peak in 2007 and has not since late 1992 delivered a positive total return destroying capital a rapid pace when adjusted for inflation. Credit Suisse had some years after the Great Financial Crisis when it was delivering better return on equity (ROE) than the overall European banking sector but since 2011 its performance has continuously deteriorated relative to the industry. The current 12-month forward ROE is now only 3.9% which is well below the cost of equity. Credit Suisse is a symptom on European banks stuck in a prohibitive regulatory environment, low growth economy, and overhang of bad debt. It is difficult to be structurally positive on European banks.

Source: Bloomberg

Exxon Mobil is close to be back in the top 10 of S&P 500

Exxon Mobil, the biggest oil and gas company in the US, is up 71% this year taking the market value to $440bn as of yesterday’s close. This brings the stock to the 11th place in S&P 500 on market capitalization regaining some of the lost terrain for energy stocks in the S&P 500. Despite the recent rally Exxon Mobil is valued at 12-month free cash flow yield of 9% compared to around 6% for the MSCI World Index.

As we recently wrote in a note, energy stocks are the cheapest in 27 years, and they have rallied from just 2.4% of the total market value in the S&P 500 to 5.2% as of May with the long-term average at 7.5%. Under the assumption of an ongoing energy crisis and hangover from low investments over the previous 8 years, energy prices will continue to remain high and deliver high return on invested capital for energy companies. We remain structurally positive on oil and gas stocks.

Source: Saxo Group
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.