Credit Suisse in market spotlight despite moves to ease concerns

  • Credit Suisse caught in market turmoil ahead of overhaul
  • Shares fell as much as 11.5% before recouping losses
  • The Bank’s euro-denominated bonds hit historic lows
  • Swiss bank says its capital and liquidity are strong

ZURICH, Oct 3 (Reuters) – Credit Suisse saw its shares fall 11.5% and its bonds hit record highs on Monday as concerns grew over the bank’s ability to reorganize its business and strengthen its capital after a series of precipitous losses restarting the strategy.

The bank, one of Europe’s largest and one of Switzerland’s globally systemically important banks, has been hit by a series of problems. It had to raise capital, suspend share buybacks, cut its dividend and reorganize management after it lost more than $5 billion following the collapse of Archegos in March 2021, when it also had to suspend client funds linked to bankrupt financier Greensill. Read more

The bank is working on a restructuring plan which it is due to unveil with the third quarter results on October 27.

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“The key issue is the viability of the bank after its upcoming strategic review,” wrote ABN AMRO analyst Joost Beaumont, who added that unfavorable market conditions have increased the “risk of execution of any strategic review “.

While Credit Suisse’s recent problems were well known and there had been no major recent developments, Swiss regulator FINMA and the Bank of England in London, where the lender has a major hub, were monitoring the situation. and were working closely together, a source close to the situation told Reuters.

The Bank of England, FINMA and the Swiss Finance Ministry declined to comment.

Chief Executive Ulrich Koerner told staff last week that Credit Suisse (CSGN.S), whose market capitalization fell to a record low of 9.73 billion Swiss francs ($9.85 billion) on Monday, has strong capital and liquidity. Still, bank executives spent the weekend reassuring large customers, counterparties and investors about its liquidity and capital, the Financial Times reported on Sunday. Read more

A Credit Suisse spokesperson declined to comment on the FT report. The weekend calls followed a sharp rise in spreads on the bank’s credit default swaps (CDS), which provide protection against a company defaulting on its debt, the FT said. .

Credit Suisse CDS soared again on Monday, adding 105 basis points from Friday’s close to trade at 355 basis points, their highest level in at least more than two decades. The bank’s CDS stood at 57 bp at the start of the year.

Still, by and large, investors weren’t panicking about broader risk.

“It’s irrelevant for general systemic risk, and they will be recapitalized by the public markets if the environment is good in a month or two, or they will be supported by the Swiss government if the environment is bad,” said Thomas Hayes. , chairman and member of the management of Great Hill Capital, based in New York.

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Logo of Swiss bank Credit Suisse is seen in Zurich
The logo of Swiss bank Credit Suisse is seen at an office building in Zurich, Switzerland September 2, 2022. REUTERS/Arnd Wiegmann/File Photo

Meanwhile, the lender’s international bonds also showed strain. Credit Suisse’s euro-denominated bonds fell to record lows, with longer-dated bonds suffering the biggest declines, although they recouped some losses in the afternoon. Read more

Shares, down more than half this year, hit early lows and were down 0.4% at 3.96 Swiss francs as of 1500 GMT.

In July, Credit Suisse announced its second strategy overhaul in a year and replaced its CEO, bringing in restructuring expert Koerner to cut investment banking and cut costs by more than $1 billion. . Read more

The bank is considering steps to reduce its investment banking to a “small-cap, advisory-focused” business, and is evaluating strategic options for the securitized products business, Credit Suisse said.

Citing people familiar with the situation, Reuters reported last month that Credit Suisse was probing investors for fresh cash as it attempted its overhaul. Read more

‘HEALTHY’ LIQUIDITY

JPMorgan analysts said in a research note on Monday that, based on its financial statements at the end of the second quarter, they considered Credit Suisse’s capital and liquidity to be “sound.”

Given that the bank has indicated its near-term intention to maintain its CET1 capital ratio at 13-14%, the end-of-Q2 ratio is well within this range and the liquidity coverage ratio is well above the requirements, the analysts added.

Credit Suisse had total assets of 727 billion Swiss francs ($735.68 billion) at the end of the second quarter, including 159 billion francs in cash and receivables from banks, while 101 billion francs were assets commercial, he noted.

Still, investors are questioning how much capital the bank might need to raise to fund the cost of a restructuring, Jefferies analysts wrote in a note to clients on Monday. In addition, the bank is now potentially a forced seller of assets, they said.

Deutsche Bank analysts in August estimated a capital shortfall of at least 4 billion francs. In the past three quarters alone, Credit Suisse’s losses have amounted to almost 4 billion Swiss francs. Given the uncertainties, the bank’s funding costs have skyrocketed.

($1 = 0.9882 Swiss francs)

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Reporting by Michael Shields and Oliver Hirt in Zurich; Additional reporting by Lucy Raitano, Huw Jones and Karin Strohecker in London and Davide Barbuscia in New York; Editing by Noele Illien, David Goodman, Elisa Martinuzzi and Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

Michael Shields

Thomson Reuters

Swiss and Austrian Bureau Chief leading a multimedia team of journalists based in Zurich, Geneva and Vienna covering Swiss and Austrian news, reports, photos and videos with experience reporting from dozens of countries on three continents since 1987.

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