CREDIT SUISSE GROUP AG
Fitch Ratings has maintained
The Rating Watch on Swisscard's 'bb-' Shareholder Support Rating (SSR) has been revised to Positive (RWP) from Evolving.
The RWN on the IDRs reflects Fitch's view that Swisscard's standalone credit profile could be negatively affected by the merger between
The RWP on Swisscard's SSR mirrors that on
Swisscard is a leading Swiss credit card provider and a 50-50 joint venture between CS Schweiz, CS's domestic Swiss bank subsidiary, and
Key Rating Drivers
Contingent Risk to Business Profile: Swisscard's Long-Term IDR is driven by its standalone credit risk profile and reflects its robust and low-risk business model with tight credit risk control, strong profitability and moderate leverage. The ratings are constrained by the company's monoline and geographically concentrated business model and reliance on wholesale funding with high asset encumbrance.
Swisscard's business model is well-established and its pre-existing strategy was well-articulated. Fitch's assessment of Swisscard's business model incorporates the company's position as the sole provider of Amex credit cards in
However, the new ownership introduces uncertainties about Swisscard's long-term strategic direction and its ability to maintain its market-leading franchise, which is reflected in the RWN on its IDRs. CS Schweiz is one of Swisscard's key distribution channels, accounting for a sizeable part of business volume and revenue.
No Refinancing Risk in 2023: Proceeds from a
Swisscard's liquidity requirements are limited to its short-term liquidity needs, which are supported by the cash-generative nature of the underlying credit card receivables, combined with Swisscard's available liquidity facilities of around
Weaker Support Ability: In our view, Swisscard is strategically important but not core to CS Schweiz, resulting in an SSR that is one notch lower than CS Schweiz's 'bb' VR, which anchors our support assessment. Fitch currently uses CS Schweiz's VR rather than its Long-Term IDR as the anchor rating because of its view that there is insufficient certainty to assume that support would flow from CS Schweiz's owner through to Swisscard.
Fitch's assessment of shareholder support from CS Schweiz considers the shared jurisdiction, the manageable cost of potential shareholder support relative to CS Schweiz's available resources, and synergies between CS and Swisscard, given that Swisscard is the sole issuer of CS's credit cards in
No Uplift from Amex: Fitch acknowledges the strategic nature of Swisscard's relationship with Amex, but the agency does not ascribe any shareholder support uplift to Swisscard's ratings from Amex under the current structure, given the different branding, the joint-venture nature of the ownership structure and the limited impact of Swisscard's activities on Amex's overall business.
Rating Watch Resolution:
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
IDRs
Clear indications of a weakening of Swisscard's franchise, its ability to originate business and/or its competitive position in the Swiss credit card market as a result of a new strategic direction under the post-merger structure could lead to a downgrade of Swisscard's IDRs.
A downgrade of Swisscard's Long-Term IDR by two notches, in conjunction with a weaker assessment of Swisscard's funding, liquidity and coverage profile, could lead to a downgrade of Swisscard's Short-Term IDR in line with Fitch's rating correspondence table.
SSR
A downgrade of CS Schweiz's VR could lead to a downgrade of Swisscard's SSR, although this is unlikely given that CS Schweiz's VR is on RWP.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
IDRs
Upgrade potential for Swisscard's IDRs based on its standalone credit profile is unlikely in the medium term given the RWN, which reflects current uncertainties regarding its strategic direction under the announced new ownership. Swisscard's modest scale (in an international context), monoline business model and wholesale funding profile also limit upside potential. However, on a support-driven basis, the IDRs could be upgraded if the SSR was upgraded to 'a' or higher.
Fitch expects to resolve the RWN and affirm the ratings if it believes there is sufficient clarity about Swisscard's long-term strategic direction and it remains supportive of Swisscard's pre-merger business model and franchise position.
SSR
Fitch currently uses CS Schweiz's VR rather than its Long-Term IDR as the anchor rating. However, a potential reassessment of the support anchor under the to-be-announced post-merger strategy may result in support being anchored ultimately to CS Schweiz's owners, which could result in an SSR upgrade. This would be based on Fitch's view that Swisscard remains a strategically important or core entity within the enlarged group.
An upgrade of CS Schweiz's VR could also lead to an upgrade of Swisscard's SSR, as long as Fitch maintains its current notching difference.
ADJUSTMENTS
The sector risk operating environment has been assigned above the implied score due to the following adjustment reason(s): regulatory and legal framework (positive)
The earnings & profitability has been assigned below the implied score due to the following adjustment reason(s): revenue diversification (negative)
The funding, liquidity & coverage has been assigned above the implied score due to the following adjustment reason(s): funding flexibility (positive)
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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