Morgan Stanley Turns Bullish On Credit Suisse

Tom Burroughes

18 February 2009

Morgan Stanley, the US bank, has increased its stock recommendation on Credit Suisse to “overweight”, taking the view that the bank has more potential for book value growth than for many other banks.

The US bank previously had an “even weight” or neutral stock stance on Credit Suisse, Switzerland’s second largest bank behind UBS. Morgan Stanley, in a briefing note by analyst Huw van Steenis, reiterated its suggestion to switch out of UBS and into Credit Suisse.

Last week, Credit Suisse announced that it suffered a loss from continuing operations of SFr7.68 billion ($6.65 billion) in 2008, contrasting with an income of SFr7.75 billion in 2007, while pre-tax income at its wealth management divison fell by 37 per cent over the year to SFr2.44 billion.

On the wealth management side of Credit Suisse’s operations, Morgan Stanley predicts that the Swiss bank will see assets under management rise by 10.7 per cent in 2009 and by 9.5 per cent in the following year. Pre-tax profits will drop by more than 9 per cent this year but rebound by 31 per cent in 2010.

“While we are mindful of the fragility of market conditions, we think CSG has much better potential for book value growth in Europe than the vast majority of banks we cover, where dilution and book value destruction remain the main issues,” the note said.

For European banks as a whole, Morgan Stanley said its outlook is bearish. Key underweight recommendations are on Germany’s Commerzbank and Deutsche Bank.