Exclusive: Credit Suisse encourages investors to increase their capital

The logo of the Swiss bank Credit Suisse can be seen in an office building in Zurich, Switzerland, 2 September 2022. REUTERS / Arnd Wiegmann

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ZURICH, 23 Sept. (Reuters) – Credit Suisse is probing investors looking for fresh liquidity, two people familiar with the matter said, approaching them for the fourth time in about seven years as it attempts a radical overhaul of its investment bank.

The Swiss bank has started talking to investors about the move in recent weeks, people said. Various scenarios for the investment bank are under discussion, including the more drastic option of largely exiting the US market, two sources said.

It is unclear how passionate the investors are and the interest can be dampened by the fact that the second largest Swiss bank, which struggled after a string of scandals, raised nearly 12 billion francs ($ 12.22 billion) of capital from the 2015, almost equivalent to its current market value.

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Sources said no decisions have been made and they haven’t worked out how much money the bank will try to raise.

Shares of Credit Suisse fell 8.3% in early trading on Friday, hitting the lowest level on record. Read more

“With a potential sale of the share (securitized products) and the reduction of risks on the balance sheet, up to 4 billion Swiss francs are missing for the upcoming restructuring, growth plans in wealth management and for the accumulation of equity”, Lo said ZKB analyst Christian Schmidiger.

With a market capitalization of around 12.3 billion Swiss francs, this would mean “a significant dilution for existing shareholders,” Schmidiger added in a research note.

A spokesperson for Credit Suisse (CSGN.S) said, “We said we will update progress on our full strategy review when we announce our third quarter earnings. It would be premature to comment on any results before then.”

The spokesperson added: “Credit Suisse is not exiting the US market.”

In addition to the investment bank, Credit Suisse’s operations in the United States include wealth management.

Bloomberg separately reported that Credit Suisse is considering the sale of its LatAm Wealth business excluding Brazil.

The bank’s quarterly results are expected for October. 27.

Last year, Credit Suisse was fined for arranging a fraudulent loan to Mozambique, which was affected by the collapse of Archegos, overshadowed by its involvement with the late financier Greensill Capital and reprimanded by regulators for spying on its executives.

As part of a restructuring initiated by president Axel Lehmann, the bank plans to downsize its investment bank to focus even more on its flagship wealth management business.

The bank announced its second strategy review in a year and replaced its CEO in July, engaging restructuring expert Ulrich Koerner to scale investment banking and cut more than $ 1 billion in costs. Read more

In the last three quarters alone, the losses have amounted to almost 4 billion Swiss francs. Given the uncertainties, the bank’s financing costs have increased. Deutsche Bank analysts in August estimated a capital shortfall of at least CHF 4 billion.

The sale of the mortgage and other loan securitization business, as already reported, could cover some of this.

There is significant interest in this business, sources say, including from financial investors, other banks and insurers. The business is profitable, but also capital-intensive. One expert estimated it to be worth $ 1 billion-2.5 billion.

In addition, other smaller businesses could be sold.

One of the sources who spoke to Reuters said avoiding a capital increase is likely to be difficult. The major investors the bank is dealing with, however, are making strong demands to participate in a capital increase.

Among the board members who will ultimately decide on the strategy, opinions differ on just how radical the cut in investment banking should be.

If the bank were to largely exit US investment banking, some key areas for its core business with millionaires and billionaires would shift to other parts of the bank.

Credit Suisse is also evaluating the possibility of cutting around 5,000 jobs – roughly one in 10 – as part of cost reduction. Read more

($ 1 = 0.9762 Swiss francs)

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Additional reports by Pamela Barbaglia in London and Megan Davies in New York; Written by Michael Shields and John O’Donnell; Editing by Elisa Martinuzzi, Edmund Blair, Jan Harvey and Alexander Smith

Our Standards: Thomson Reuters Trust Principles.

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