Executives at Credit Suisse announced their corporate restructuring plan, in conjunction with a disappointing third-quarter earnings report. The Swiss lender, which has been plagued by scandals and unprofitable business ventures in recent years, said it lost far more money than analysts expected in the third quarter, as it embarked on a revamp that will include cleaving its investment division into an independent unit under the revived CS First Boston brand, and raising billions of dollars through stock sales.
The Zurich-based bank announced the restructuring after posting a net loss of 4.03 billion Swiss francs ($4.09 billion) in its fiscal third quarter, compared with expectations for a 568 million franc loss. Its shares tumbled by more than 16% in early trading on Thursday, and are hovering near the record low set in late September.
Credit Suisse said it plans to raise four billion francs ($4.04 billion) through share sales and a rights offering, and will buy back $3 billion of its own corporate bonds to increase liquidity and reduce debt servicing costs. Executives also created a capital release valve to wind down unprofitable businesses.
The lender’s riskiest corporate bonds have tumbled to record lows in recent weeks. Earlier this month, Credit Suisse’s Tier 1 perpetual bond plunged to 77 cents on the dollar. Spreads on the bank’s credit default swaps (CDS), which hedge investors against a potential debt default, rose to their highest levels since the Global Financial Crisis.
- Credit Suisse announced its corporate restructuring plan Thursday, in conjunction with its earnings report for the third quarter.
- Credit Suisse posted a net loss of $4.09 billion in the third quarter, far exceeding projections of a $575 million loss.
- As part of its restructuring plan, Credit Suisse will spin off its investment division, create a capital release valve, raise additional capital, and buy back its debt to increase liquidity.
- Spreads on the bank’s credit default swaps (CDS), which insure investors in the event of a debt default, surged in recent weeks to their highest levels since the Global Financial Crisis.
- Credit Suisse has struggled in recent years as a result of scandals and unprofitable investment decisions, including a stake in the now-defunct Archegos Capital Management, which defaulted in early 2021.
- Executives have attempted to reassure capital markets and investors, insisting that Credit Suisse has enough capital and liquidity to weather a major downturn.
Declining Fortunes for Credit Suisse
The fortunes of Credit Suisse, a designated systemically important financial institution (SIFI), have declined in recent years. Dogged by scandals, its unprofitable ventures include a $5.1 billion loss associated with the March 2021 default of Archegos Capital Management. The bank’s financial troubles prompted executives to cut dividends, halt share buybacks, and look for new sources of capital funding.
Executives Reassure Capital Markets
Credit Suisse executives have sought to calm investors, saying the bank has enough capital and liquidity to weather a market downturn. Despite these assurances, Chief Executive Officer Ulrich Koerner acknowledged, in an internal memo to employees, that the bank is at a “critical moment.” Analysts at other big banks, including Citigroup and J.P. Morgan Chase, downplayed the risk, ruling a systemic failure as “unlikely.”
Shares of Credit Suisse traded at roughly $4 a share Thursday morning. They’re down more than 60% this year, and are 95% off their all-time highs reached in early 2007.