Credit Suisse in market spotlight despite moves to ease concerns – Reuters.com

ZURICH, Oct 3 (Reuters) – Credit Suisse Group AG (CSGN.S) saw its shares fall 11.5% and its bonds hit record highs on Monday before recouping some of the losses amid concerns over the lender’s ability to restructure its business without asking for more money.

The situation prompted Swiss regulator FINMA and the Bank of England in London, where the lender has a major hub, to monitor what was happening and work closely together, a source familiar with the matter said.

Some analysts and industry sources said the bank has enough capital and liquidity to weather any crisis. An analyst said investors feared the bank’s ability to execute a turnaround strategy, which it is due to reveal on Oct. 27.

Widespread market unease is also likely adding to investor concerns, they said. Global financial markets have been particularly fragile lately, where rapidly rising interest rates, policy inconsistencies, recession fears and the war in Ukraine have unnerved investors.

“The key issue is the viability of the bank after its upcoming strategic review,” wrote ABN AMRO analyst Joost Beaumont, who added that unfavorable market conditions have increased the “risk of execution of any strategic review “.

The Bank of England, FINMA and the Swiss Finance Ministry declined to comment.

Citi analysts said widening credit spreads could exacerbate market fears and hurt counterparty confidence, as well as push up funding costs.

“Over the long term, the lower the stock price, the more dilutive any capital raise becomes (and vice versa), which limits the extent of any investment banking restructuring that CS can undertake,” the shareholders said. analysts.

Credit Suisse, one of Europe’s largest banks and one of the world’s systemically important Swiss banks, had to raise capital, suspend share buybacks, cut its dividend and reorganize its management after losing more than $5 billion following the collapse of investment firm Archegos in March 2021, when it also had to suspend client funds linked to failing financier Greensill. Read more

In July, Credit Suisse announced its second strategy review in a year and replaced its chief executive, bringing in restructuring expert Ulrich Koerner to cut investment banking and cut costs by more than $1 billion. of dollars. Read more

The bank is considering steps to reduce its investment banking to a “small-cap, advisory-focused” business, and is evaluating strategic options for the securitized products business, Credit Suisse said.

Citing people familiar with the situation, Reuters reported last month that Credit Suisse was probing investors for fresh cash as it attempted its overhaul. Read more

SHARES DOWN

Shares of Credit Suisse fell as much as 11.5% before falling early to drop just 1%. Its international bonds also showed the pressure, with euro-denominated bonds falling to record lows before recovering some losses in the afternoon.

Longer-dated bonds from the troubled lender suffered the biggest declines. Read more

Spreads on Credit Suisse’s U.S. dollar bonds were quoted Monday morning about 40 to 90 basis points wider than their outstanding bonds. Their 2027 bonds were around 365 basis points above Treasuries against a 290 basis point offer on Friday, while the 6.537% Credit Suisse bond due August 2033 was offered at 460 basis points above Treasuries from 420 basis points on Friday, a syndicate banker said.

“That’s pretty ugly for CS bonds,” the banker said.

Credit Suisse credit default swaps soared on Monday, adding 105 basis points from Friday’s close to trade at 355 basis points, their highest level in at least more than two decades. The bank’s CDS, which measures the cost of insuring its bonds, stood at 57bp at the start of the year.

The bank’s executives spent the weekend reassuring major clients, counterparties and investors about its liquidity and capital, the Financial Times reported on Sunday. Read more

This follows Chief Executive Koerner’s statement to staff last week that the bank, whose market capitalization fell to a record low of 9.73 billion Swiss francs ($9.85 billion) on Monday, has capital and strong liquidity. Read more

Some investors said they weren’t panicking.

“They will be recapitalized through public markets if the environment is good in a month or two, or they will be backed by the Swiss government if the environment is bad,” said Thomas Hayes, president and managing member of New York-based at Great Hill Capital.

‘HEALTHY’ LIQUIDITY

JPMorgan analysts said in a research note on Monday that, based on its financial statements at the end of the second quarter, they considered Credit Suisse’s capital and liquidity to be “sound.”

Given that the bank has indicated its near-term intention to maintain its CET1 capital ratio between 13% and 14%, the end-of-Q2 ratio is well within this range and the liquidity coverage ratio is well above. requirements, the analysts added.

Credit Suisse had total assets of 727 billion Swiss francs ($735.68 billion) at the end of the second quarter, including 159 billion francs in cash and receivables from banks, while 101 billion francs were assets commercial, he noted.

Still, investors are questioning how much capital the bank might need to raise to fund the cost of a restructuring, Jefferies analysts wrote in a note to clients on Monday. In addition, the bank is now potentially a forced seller of assets, they said.

Deutsche Bank analysts in August estimated a capital shortfall of at least 4 billion francs.

Reporting by Michael Shields and Oliver Hirt in Zurich; Additional reporting by Lucy Raitano, Huw Jones and Karin Strohecker in London and Davide Barbuscia and Shankar Ramakrishnan in New York; Editing by Noele Illien, David Goodman, Elisa Martinuzzi, Alexander Smith and Jonathan Oatis

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