Credit Suisse (CSGN.S) is in the early stages of looking into options to boost its capital after a series of losses has destroyed its financial buffers, two people familiar with the matter told reporters.
The size of the growth would be likely to go over 1 billion Swiss francs ($1.04 billion), but this has not yet been confirmed, said one of the people, who declined to be named since the discussions are still internal.
The cash injection would assist Switzerland’s second-largest bank to bounce back from billions of losses last year and a string of costly legal problems. Trading shares to some of its key current investors is the opted option. However, Credit Suisse has not eliminated tapping all shareholders, this person said.
A sale of a business, such as Credit Suisse’s asset management division, is also a prospect, according to the other source. The bank had not yet settled on any probable action, for now. Any transaction was expected for the second half of this year.
On the other hand, Credit Suisse said in an official statement:
“Credit Suisse is currently not considering raising additional equity capital. The Group is robustly capitalized with a CET1 ratio of 13.8% and a CET1 leverage ratio of 4.3%. Asset Management is an essential part of our group strategy presented last November, with four core divisions.”
The CET1 ratio is a major indicator of a bank’s financial strength.
Shares in Credit Suisse slid 4.2%, compared with a 0.9% slump in the European banking index (.SX7P) and a 0.7% fall in the Swiss blue-chip index (.SSMI), following the Reuters report. Jefferies analysts wrote in a research note:
“The news, if confirmed, points to potentially more pain than we currently expect.”
Credit Suisse Actively Seeking Way Of Mitigating Losses
The Jefferies analysts implied that the move could indicate lower earnings than forecast or else a backstop plan in case the environment for costs and revenues does not pick up as expected next year.
A big Credit Suisse shareholder, Harris Associates, said it saw no need for the Swiss bank to obtain additional equity capital. David Herro of Harris Associates told Reuters:
“Given the strength of their balance sheet today, we agree with the company’s statement that no new equity raise is necessary.”
Harris Associates owns a stake of around 5.2%, the bank’s website showed, currently making it the largest shareholder.
DEBT DOWNGRADES
Credit Suisse is faltering from billions in losses registered last year via failed investments, plus the fallout from numerous legal cases, including a Bermuda court case that could cost about $600 million.
The bank has been striving to reshape its risk management culture and also move forward from a string of scandals, which have led to several waves of abrupt departures, management shake-ups, and external and internal investigations.
Shares in the bank have dropped by more than a fifth in 2022. Standard & Poor’s and Fitch both lowered their debt ratings for Credit Suisse this month. One of the sources said Swiss financial watchdog FINMA’s annual evaluation of top Swiss banks had evaluated Credit Suisse at 4, consistent with 2021, the lowest possible grade.
One of the watchdog’s main fears was financing at group level, this source said. FINMA refused to comment.
The considerations about a capital boost come just a year after the Swiss bank obtained about 1.75 billion Swiss francs from investors through mandatory convertible notes. Credit Suisse had understated the need for fresh capital in April despite posting a first-quarter loss that amplified its financial troubles.
Buy Bitcoin NowExecutives of Credit Suisse said at the time that capital could remain limited over the next six months as the bank proceeds to make major outlays towards compliance and risk. But, a source with knowledge of the matter said a capital boost was not under deliberation at the moment.
The bank’s key capital ratio declined to 13.8% at the end of the first quarter of the year from 14.4% at the end of last year.
However, a fresh capital boost would improve Credit Suisse’s balance sheet and also give a positive sign. If popular investors contributed new cash to the bank, this could be seen as a sign of optimism, one of the sources said.
($1 = 0.9586 Swiss francs)
