* Tight capital and earnings at risk, not a great combination
We added Credit Suisse and UBS to the ‘Exane 20’ list on Monday last week, as part of the key Underperform ideas, and reiterated our Underperform recommendations on all three IBs in the report INVESTMENT BANKS: Brexit: Reiterate caution. Despite the underperformance we have seen since then, and since the start of the year, we continue to see the risks for these names skewed to the downside relative to the sector. In this note we are cutting our estimates and valuation, to reflect weaker markets. We were already well below consensus, and see structural
problems exacerbated by recent events.
* Credit Suisse and Deutsche Bank screen especially poorly
It is still no clearer what the implications of the referendum vote are for the UK, Europe and the Global economy, and whilst there has been some stabilisation in share prices, we expect ongoing volatility. Within the mix we see capital markets activity most negatively impacted, even if some of the issues diminish and there is a spike in near term activity. This has a corresponding impact on capital generation. As we illustrate in our report BANKS: It will take a while until the dust settles, in a stress scenario it is hard to see a floor for Deutsche Bank and Credit Suisse. UBS fares better as capital is stronger and there is less restructuring related risk, but it also sees significant downside risk from current levels and we cut our 2016 dividend estimate to 30c (from 60c).
* We cut our estimates but do not discount a stress scenario at this stage
We have made further negative revisions to wealth management for Credit Suisse and UBS, where we see an intensification of the pressures we highlighted in CREDIT SUISSE, UBS GROUP: Is the way we model wealth management wrong?, and we have made some cuts to IB revenue estimates. The cuts to DB estimates are more limited as we cut recently (see DEUTSCHE BANK: How is this going to play out?), but given greater uncertainty over earnings and capital, we have increased our cost of equity estimate. We cut our TPs to CHF9/EUR10/CHF11 for Credit
Suisse/Deutsche Bank/UBS respectively and reiterate our Underperform ratings.