Hits and misses: Lex truest on Credit Suisse, without credit on Truist

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Many banks trade below their book value. Such valuations indicate lack of faith in balance sheets. This scepticism proved warranted in the past year when Credit Suisse was forcibly absorbed by local rival UBS and US regional banks plunged into freefall.

At the start of 2023, Credit Suisse’s financial strength appeared bullet-proof. Its common equity tier one capital ratio exceeded 14 per cent, far above US regional bank Truist.

Regardless, Lex questioned how the Swiss bank could manage its clients’ wealth when it could not manage its own affairs properly.

Credit Suisse had frittered away its hard-won reputation through a series of scandals and management mis-steps. These had already depressed the share price to a three-decade low by the end of 2022. An initial offer of liquidity from the Swiss National Bank finished with a shotgun marriage to UBS in late March.

Lex’s qualified view that the state-backed deal could be transformative for UBS has become progressively less qualified given signs the integration is a smooth one.

At the end of 2022, US bank group Truist had some $400bn of deposits offering cheaper funding than Wall Street behemoths such as JPMorgan and Citi. Early this year, Lex thought that these deposits conferred an advantage to Truist. They did not.

Almost half of the bank’s deposits were uninsured at the end of 2022, according to Barclays, just as the storm over Silicon Valley Bank and other regionals hit. Customers with uninsured deposits and those seeking higher returns on their cash moved quickly to withdraw their money.

As Truist’s funding costs climbed, its net interest income fell. Credit provisioning rose. Truist’s earnings fell in the first nine months of the year. After March, its price-to-book ratio dropped precipitously to 0.7 times, almost half the long-term average. Its share price this year trailed the KBW Regional Banking index by 14 percentage points.

If there is anything to learn from Lex’s banking hit and miss, it may be that it is easy to predict dire trouble where trouble is already occurring.