On Monday, when markets placed Credit Suisse (CSGN.S) under close examination, the bank’s shares and bonds experienced precipitous declines.
Insisting that its capital & liquidity are robust, the Swiss bank has stated that it will have more to say regarding a strategic rethink when it reports third-quarter results on October 27.
Investor scrutiny of Switzerland’s second-largest bank has increased due to a run of losses, high-profile risk management failures, and changes in top leadership.
After losing over $5 billion as a result of the collapse of Archegos in March 2021, Credit Suisse was forced to raise capital, limit share repurchases, reduce its dividend, and restructure its management. It was also forced to halt customer funds associated with collapsed financier Greensill.
Then-CEO Tidjane Thiam was forced to resign in 2020 due to a spying scandal, and Switzerland’s financial watchdog claimed Credit Suisse had lied to them about the scope of its surveillance.
In July 2022, Credit Suisse appointed restructuring expert Ulrich Koerner as CEO and began a second critical evaluation within a year to concentrate on its flagship wealth management division and scale back investment banking. His successor Thomas Gottstein served in that position until that point.
Antonio Horta-Osorio, who departed less than nine months after arriving due to breaching quarantine laws during the COVID-19 epidemic, was replaced as chairman by Axel Lehmann in January.
Urs Rohner, Horta-predecessor, Osario’s acknowledged that the bank had let down consumers and shareholders previously when he left office last year.
Over the previous three quarters alone, Credit Suisse’s losses have totaled roughly 4 billion Swiss francs ($4 billion), and its financing costs have increased as a result of rating downgrades.
Credit Suisse has stated that it aims to expand its wealth management business, transform its investment bank into an advisory-led, capital-light operation, and assess strategic choices for the Securitized Products division.
According to analysts, it may need to raise between 4-6 billion Swiss francs in capital to restructure, sustain growth, and have a safety net, depending on how much it generates via asset sales and how much it reduces the size of its investment bank.
Asset sales will help, but it’s more likely that the 4 billion Swiss francs will come via a heavily diluted capital offering. The good news is that some of this is already reflected in the share price, according to analysts at Bruyette & Woods, Keefe.
One possibility is to target a significant stakeholder with a directed capital raise.
Credit Suisse may, as a last resort, apply for public assistance.
Credit Suisse has been essential to the history and advancement of Switzerland ever since its founding in 1856. Alfred Escher, a politician, and businessman from Switzerland, founded it to fund the nation’s railroads and promote industrialization.
It has expanded through a series of acquisitions and mergers to rank as one of the largest banks in Europe and the second-largest lender in Switzerland.
At the end of 2021, it employed slightly over 50,000 people and managed assets worth $1.62 trillion in Swiss francs.
Along with wealth management, investment banking, and asset management businesses, Credit Suisse also operates a local Swiss bank.
It is one of Switzerland’s globally systemically important banks, according to the Swiss National Bank, whose failure would seriously impair the Swiss financial and economic system.
While the price of Credit Suisse’s euro-denominated bonds hit new lows on Monday, the company’s shares have dropped more than 55% this year.
Credit Suisse’s credit default swaps, which are used to protect against exposures to the lender’s debt, were valued at 250 basis points on Monday, a significant increase from the 57 bps they were at the beginning of the year.