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Credit Suisse seeks billions from investors in make-or-break deal

Reuters/Arnd Wiegmann
Some 307.6 million of the new shares are expected to be bought in private placement by Saudi National Bank

Credit Suisse plans to raise 4 billion Swiss francs ($4 billion) from investors, cut thousands of jobs and shift its focus from investment banking towards rich clients as the bank attempts to put years of scandals behind it, sending its shares sliding.

Chairman Axel Lehmann dubbed the plan a “blueprint for success”, but it fell flat with investors after the bank’s unexpected 4 billion Swiss franc third-quarter loss.

Its stock price, which has hit record lows in the past few weeks, fell as much as 18.6 percent by the close of trading, valuing the bank at around 10 billion francs.

The cost of insuring the bank’s debt against default, as measured by credit default swaps, rose during the day to 254 basis points versus 232 in the early morning, although lower than Wednesday’s close, according to S&P Global Market Intelligence.

Analysts said many questions were unanswered.

“You come away with the feeling that they were rushed into issuing (the news) this morning with a deeply incomplete plan,” Goldman Sachs analysts wrote, but one whose “improbably low” targets will be beaten.

“Resolute execution and no further missteps will be key and it will take time until results will begin to show,” Vontobel analyst Andreas Venditti said.

Credit Suisse said clients pulled funds in recent weeks at a pace that saw the lender breach some regulatory requirements for liquidity, highlighting the impact of wild market swings and a social media storm.

The group said it was stable throughout.

The turnaround plan has many elements, from cutting jobs to refocusing on banking for the wealthy.

It will cut 2,700 jobs, or five percent of its workforce by the end of this year, and ultimately reduce its workforce by roughly 9,000 to about 43,000 by the end of 2025.

The Swiss bank also aims to separate out its investment bank to create CS First Boston, focused on advisory work such as mergers and acquisitions and arranging deals on capital markets.

The bank envisions selling a stake but keeping roughly 50 percent in the new business, said one person familiar with the issue. It is also exploring the possibility of an initial public offering.

Saudi Influence

Saudi National Bank (SNB), majority-owned by the government of Saudi Arabia, said it will invest up to 1.5 billion francs in Credit Suisse to take a stake of up to 9.9 percent and may invest in the investment bank.

The move bolsters Saudi influence in one of Switzerland’s best-known banks. Olayan Group, one of the biggest Saudi family-owned conglomerates, with a multibillion dollar investment portfolio, also owns a five percent stake in the bank.

The Qatar Investment Authority – which owns about five percent of the Swiss bank – declined to comment on whether it plans to buy any shares.

Proxy adviser Ethos Foundation said it was disappointed it took Credit Suisse so long to follow a path that rival UBS had taken to increase focus on wealth management, while pruning back investment banking.

It criticised the bank for letting SNB get a big stake at a bargain-basement price, adding: “This plan is dramatic for the current shareholders who will suffer a very significant dilution effect.”

However, investment management firm Harris Associates, which has a 10 percent stake, said it welcomed the “aggressive” approach the Swiss bank was taking to improve its performance.

Credit Suisse said it will create a capital release unit to wind down non-strategic, higher-risk businesses, while announcing plans to sell a large part of its securitised products business to an investor group led by Apollo.

The bank will also wind down some trading businesses in emerging markets and equities.

Its heavy third-quarter loss was due in large part to write-offs linked to its investment banking overhaul, including adjustments for lost tax credits.

JPMorgan analysts said that “question marks remain” over the restructuring of investment banking, adding that the share sale would also weigh on the stock.

The revamp, aiming to overcome the bank’s worst crisis in its history, is the third attempt in recent years by successive CEOs to turn the group around.

Once a symbol for Swiss reliability, the bank’s reputation has been tarnished by scandals, including an unprecedented prosecution at home involving laundering money for a criminal gang.

The bank had been pushing to sell assets to raise money and free up capital to try to limit how much cash it would have to raise from investors to fund its overhaul, handle its legacy litigation costs and retain a cushion for rough markets ahead.

Credit Suisse’s string of costly and morale-sapping blunders triggered a wholesale change of management.

Last year, the bank took a $5.5 billion loss from the unravelling of US investment firm Archegos and had to freeze $10 billion worth of supply chain finance funds linked to insolvent British financier Greensill, highlighting risk-management failings.

Its deepening problems even put it on the radar of day traders earlier this month, when a frenzy of wild speculation about its health sent its stock price into a tailspin to a record low.