Credit Suisse Group AG (ADR) (CS): Speculations by Hedge Funds Are Wrong

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Chief executive of the firm blames hedge funds for unusually high level of short positions

Credit Suisse Group AG Chief Executive, Tidjane Thiam wrote a memo which stated that hedge funds are wrong to assume that the Swiss lender needs additional capital, as stated by Bloomberg. Investors are taking more short positions as speculated in the market. Mr. Thiam is not impressed by the market sentiment created by the hedge funds.

Hedge funds are speculating that the company needs additional capital to cover restructuring and operational costs. It is stated by Mr. Thiam as incorrect and tells the staff that they shouldn’t expect additional capital raise.

Last week, Credit Suisse stock hit fresh all-time low as the share price is headed south by ‘an unusually high level of short positions’. The stock tanked almost 42% in the beginning of the year during a market sell-off, which was the lowest since 1989, according to Bloomberg data. This kind of decline has been noted in the 39-member Bloomberg Europe Banks and Financial Services Index as the sixth worst performer, sliding almost 21%.

Since taking over the office in July last year, Mr. Thiam has been seeing struggling earnings quarters and a declining stock price. He has struggled to bring profitability to the company due to several macroeconomic issues from China’s slowdown, negative interest rates and market volatility. It has eroded almost half of the company’s total market value since he joined. In response, Mr. Thiam has raised almost $6.3 billion in capital reserves, by eliminating jobs, shutting down business lines and taking a pay cut for himself. As a part of his strategy, he cut down on investment banking and has looked to focus more towards wealth management, especially in Asia.

According too Markit Ltd data, short interest of Credit Suisse stock accounted to 13% of the total outstanding shares, which increased from 9% at the end of last month. Moreover, hedge funds and investors are looking for potential profit from the stock decline.

There has not been much change in the risk-weighted capital ratio of 11.4%, as it has been stable for the past three months. In comparison, UBS has a higher ratio of 14%. According to SNB’s report on financial stability, both UBS and Credit Suisse are to increase extra $10 billion to meet the new leverage requirements.

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