Credit Suisse in market spotlight despite efforts to calm concerns

ZURICH, Oct 3 (Reuters) – Credit Suisse saw its shares fall as much as 11.5% on Monday and its bonds hit record lows as concerns mounted over the bank’s ability to revamp its business and its Strengthen capital after a series of losses Restart strategy.

The bank, one of the largest in Europe and one of Switzerland’s globally systemically important banks, has been beset by a series of problems. It has had to raise capital, halt share buybacks, cut its dividend and reshape management after losing more than $5 billion to Archegos’ collapse in March 2021, when it also had to suspend customer money related to failed financier Greensill. Continue reading

The bank has been working on a restructuring plan, which is due to be unveiled with third-quarter results on October 27.

“The main issue is the bank’s viability following its upcoming strategic review,” wrote ABN AMRO analyst Joost Beaumont, adding that adverse market conditions have increased the “execution risk of a strategic review.”

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

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

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

A Credit Suisse spokesman 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 default, the FT said.

Credit Suisse CDS rose again on Monday, rising 105 basis points to 355 basis points from Friday’s close, the highest level in at least more than two decades. The bank’s CDS started the year at 57 basis points.

Still, by and large, investors didn’t panic about the greater risk.

“For overall systemic risk, it is immaterial 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 Managing Director of Great Hill Capital, based in New York.

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

Stocks, which had fallen more than half this year, came off early lows and fell 0.4% to 3.96 Swiss francs at 1500 GMT.

In July, Credit Suisse announced its second strategy review in a year, replacing its CEO, bringing in restructuring expert Koerner to trim investment banking and cut costs by more than $1 billion. Continue reading

The bank is considering moves to downsize its investment bank into a “capital-poor, advisory-led” business and is evaluating strategic options for its securitized products business, Credit Suisse said.

Citing people familiar with the situation, Reuters reported last month that Credit Suisse is scouting investors for fresh money as it attempts its overhaul. Continue reading

LIQUIDITY “HEALTHY”

Analysts at JPMorgan said in a research note Monday that they view Credit Suisse’s capital and liquidity as “healthy” based on financial data at the end of the second quarter.

Given that the bank has signaled short-term intentions to maintain its CET1 capital ratio at 13-14%, the ratio at the end of the second quarter is well within that range and the liquidity coverage ratio is well above requirements, the analysts added.

Credit Suisse had total assets of 727 billion Swiss francs ($735.68 billion) at the end of the second quarter, of which 159 billion francs were cash and amounts due from banks while 101 billion francs were trading assets, it noted.

Still, investors are wondering how much capital the bank may need to raise to fund the cost of a restructuring, Jefferies analysts said in a note to clients on Monday. Also, the bank may now be a forced seller of assets, they said.

Analysts at Deutsche Bank estimated a capital shortfall of at least CHF 4 billion in August. In the last three quarters alone, Credit Suisse’s losses totaled almost CHF 4 billion. Given the uncertainties, the bank’s funding costs have skyrocketed.

($1 = 0.9882 Swiss Francs)

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; Edited by Noele Illien, David Goodman, Elisa Martinuzzi and Alexander Smith

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