Credit Suisse peed on Citigroup (C), UBS (UBS), and Fannie Mae (FNM) this morning. Starting with Citi, CS reiterated its concerns over the firm’s asset sales and continued weakness in the credit markets:
Our thesis on Citi… this is no easy fix, even for the best of managers. Consider the credit cycle, the near term cost/benefits of asset dispositions (sold revenues and earnings) and the likely need for infrastructure upgrades and integration… there’s still more downside than upside risk to our estimates. The shares are rated Neutral.
Reacting to UBS’ disastrous Q1, CS cuts estimates, but bravely maintains its Overweight position. CS is cutting its 2008 and 2009 estimates on the expectation that a future revenue shortfall will exceed their forecasts. By 2010, however, CS expects revenues to “normalise.” (Why the shortfall? CS applauds UBS’s decision to fire thousands of employees but worries that this will also will slam the top line:
Management also announced significant cost-cutting programs: A total of 5,500 headcount reductions are planned (on top of the 1500 already announced), with 2,600 of these coming in the investment bank. The target is to reach a run rate of SFr28bn/year by the middle of 2009e.
The real question here is whether such a large amount can be cut out of the cost line without affecting revenues… Outside the investment bank, the majority of these savings are to be made by headcount reduction in the wealth management businesses; although the company suggests that these cuts will not affect customer-facing employees and will not reduce revenues, we find it hard to believe that there was so much fat in the business.)
Turning to Fannie Mae, CS boosts its revenue estimates, but is “reviewing overall loss assumptions” following FNM’s Q1 debacle:
We increased our revenue growth expectations for Fannie Mae, and added in the new capital, higher expected credit costs in 2009, and our estimates are essentially the same as they had been prior to the quarter. We would note that of the three highlights of the quarter (expected growth in the retained portfolio, higher guarantee revenues and higher expected credit losses in 2009) only the higher credit losses in 2009 is essentially new information.
We will likely review our overall loss assumptions in the coming days, as we analyse the recent information provided by the company. However, we note that the company has increased its credit loss forecast in each of the last three quarters, and the current quarter is not likely to be the last instalment .
CS maintains its Underperform rating and $22 price target.
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