- The bank will buy back up to $3 billion of debt
- Offer to reassure investors
- The move comes weeks before the scheduled overhaul
ZURICH, Oct 7 (Reuters) – Credit Suisse ( CSGN.S ) will buy back up to 3 billion Swiss francs ($3 billion) of debt, an attempt by the Swiss bank to show its financial muscle and reassure investors investors concerned about lender review. and how much it might cost.
Speculation about the bank’s future intensified on social media last week amid anticipation that it may have to raise billions of francs in fresh capital, sending its shares and some bonds to new lows.
The buyback cuts the bank’s debts and is an attempt to bolster confidence. But the central questions about its restructuring – and whether or not it will need new capital to finance it – remain open.
Register now for FREE, unlimited access to Reuters.comRegister
One of Europe’s biggest banks, Credit Suisse, is trying to recover from a series of scandals, including the loss of more than $5 billion from the collapse of investment firm Archegos last year past, when it also had to freeze funds from clients linked to failed financier Greensill.
The bank’s executives spent last weekend reassuring big customers and investors about its financial strength. Chief Executive Ulrich Koerner also told staff in a memo that he had sufficient capital and liquidity. Read more
Underscoring this, the bank said the buyback would “allow us to take advantage of market conditions to buy back debt at attractive prices.”
Investors took heart. Shares in Credit Suisse gained as much as 3% in early Friday trading, while the price of its euro-denominated bonds rose.
“It’s an opportunistic move to take advantage of market conditions that may be reassuring for some investors,” Vontobel analyst Andreas Venditti said. “If it is bought below par, it creates a gain that will slightly increase the capital.”
CHAPTER PROBLEM
Earlier this week, in an unusual move, the Swiss National Bank, which oversees the financial stability of systemically important banks in Switzerland, said it was monitoring the situation at Credit Suisse.
Banks are considered systemically important if their failure would undermine the Swiss economy and financial system.
Credit Suisse’s move recalls a multibillion-dollar debt buyback by Deutsche Bank in 2016, when it faced a similar crisis and doubts about its future.
Dixit Joshi, a former Deutsche executive, recently joined Credit Suisse as head of finance.
Zuercher Kantonalbank said the bonds were currently trading at a steep discount, allowing Credit Suisse to cut the debt cheaply. Analyst Christian Schmidiger said the move was also a “signal that Credit Suisse has enough liquidity.”
Credit Suisse said it was making a tender offer of 1 billion euros in respect of eight senior debt securities denominated in euros or sterling and another offer to buy back 12 senior debt securities denominated in US dollars for a maximum of 2 billion dollars.
The developments came after sources recently told Reuters that Credit Suisse was looking to investors for cash, approaching them for the fourth time in about seven years.
Under a restructuring launched by chairman Axel Lehmann, the bank plans to shrink its investment bank to focus even more on its flagship wealth management business.
In the last three quarters alone, losses have totaled nearly 4 billion Swiss francs. Faced with uncertainties, the bank’s funding costs have increased.
The bank is due to present its new business strategy on October 27, when it announces its third-quarter results.
Ratings agency Moody’s Investors Service expects Credit Suisse’s losses to widen to $3 billion by the end of the year, the bank’s lead Moody’s analyst told Reuters on Thursday. Read more
The bank has also said it wants to sell its luxury Savoy Hotel, one of Zurich’s best-known hotels. Read more
($1 = 0.9897 Swiss francs)
Register now for FREE, unlimited access to Reuters.comRegister
Written by John Revill and John O’Donnell; additional reporting by Amanda Cooper in London; edited by Jason Neely and Mark Potter
Our standards: the Thomson Reuters Trust Principles.