Credit Suisse is probing investors for fresh cash, two people with knowledge of the matter said, speaking to them for the fourth time in about seven years as it seeks a drastic revamp of its investment bank.
The Swiss bank began in recent weeks to approach investors about the move, the people said. Various scenarios are being disputed for the investment bank, including the most drastic alternative of substantially quitting the U.S. market, two sources said.
It is unclear how determined investors are and interest may be reduced by the fact that Switzerland’s second-biggest bank, which has grappled after a series of scandals, has amassed around 12 billion francs ($12.22 billion) in capital since 2015 – almost close to its current market value.
The sources said no decisions have been reached, and did not present details on how much cash the bank would want to raise. Shares of Credit Suisse slid by as much as 8.3% in early trade on Friday, reaching their lowest level on record.
ZKB analyst Christian Schmidiger said:
“With a potential sale of the (securitized products) unit and the reduction of risks in the balance sheet, up to 4 billion Swiss francs is missing for the upcoming restructuring, the growth plans in wealth management and for the accumulation of equity capital.”
With a market capitalization of roughly 12.3 billion Swiss francs, this would suggest “a significant dilution for the existing shareholders”, Schmidiger added in a research note.
A Credit Suisse (CSGN.S) spokesperson said:
“We have said we will update on progress on our comprehensive strategy review when we announce our third-quarter earnings. It would be premature to comment on any potential outcomes before then.”
The spokesperson added:
“Credit Suisse is not exiting the U.S. market.”
Beyond the investment bank, Credit Suisse’s operations in the U.S. include asset management. Bloomberg independently reported that Credit Suisse is considering the sale of its LatAm Wealth business except in Brazil.
The bank’s quarterly results are expected on October 27.
In 2021, Credit Suisse was fined for arranging for a fraudulent loan to Mozambique, affected by the Archegos collapse, damaged by its involvement with defunct financier Greensill Capital and criticized by regulators for snooping on its executives.
Under an overhaul started by Chairman Axel Lehmann, the bank thinks of scaling back its investment bank to concentrate even more on its flagship wealth management business.
The bank declared its second strategy review in a year and dismissed its chief executive in July, appointing restructuring expert Ulrich Koerner to shrink investment banking and reduce more than $1 billion in costs.
Over the last three quarters alone, losses have amounted to nearly 4 billion Swiss francs. Given the uncertainties, the bank’s financing costs have increased. Deutsche Bank analysts last month estimated a capital shortfall of at least 4 billion francs.
Selling its business of securitizing loans and mortgages and other loans, as already indicated, could cover part of this.
There is great interest in this business, sources said, including from other banks, financial investors, and insurers. The business is lucrative, but also capital intensive. One expert estimated it was valued at $1 billion-2.5 billion. In addition, other smaller operations could be sold.
One of the sources who spoke to Reuters said preventing a capital increase was likely to be challenging. The top investors with whom the bank is in talks, however, are making high demands for contributing to a capital increase.
Among members of the board of directors that will eventually choose a strategy, opinions vary as to how drastic the cut in investment banking should be.
If the bank were to quit U.S. investment banking largely, certain areas critical for the core business with billionaires and millionaires would shift to other parts of the bank.
Credit Suisse is also thinking about cutting about 5,000 jobs, roughly one position in 10, as part of the cost reduction drive.
($1 = 0.9762 Swiss francs)