‘Transformation’ shouts for embattled Credit Suisse

Credit Suisse has sought to reassure investors about its financial health

Battered by a series of scandals, rumors of financial trouble and falling shares, Credit Suisse is preparing “transformation plans” to restore confidence in the Swiss banking giant.

Ulrich Koerner, who took over as CEO in August, is due to present the strategic review on October 27.

With Switzerland’s second-biggest bank refraining from revealing its intentions, speculation about its incoming strategy is swirling.

Andreas Venditti, an analyst at Swiss investment firm Vontobel, said “a capital increase looks increasingly likely” for Credit Suisse.

In a note to clients, Venditti estimated the amount required to be four billion Swiss francs ($4 billion).

Investors fear such a move would reduce the value of bank stocks.

Its share price has fallen 70 percent since the March 2021 collapse of British financial firm Greensill. Credit Suisse was very exposed to the group.

Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, said a capital injection would leave a “bitter taste” for shareholders.

“But they probably don’t have a choice,” Lombardini told AFP.

The bank will need to raise capital from shareholders to finance layoffs and restructuring costs, he said.

Another option would be for the bank to sell assets.

“It’s a tough choice,” said David Benamou, chief investment officer at Axiom Alternative Investments, noting it would hurt the bank’s future revenue.

“Market conditions are tight and a seller who is forced to sell usually does not have a favorable price,” Benamu said.

Analysts at Jefferies, a financial services firm, said “asset sales alone are unlikely to be the solution to the potential capital shortfall problem.”

But, they added, “it could be a first step and buy time until shares recover and the outlook improves, so a capital increase, if needed, would be a less restrictive and more acceptable option.”

Shares in Credit Suisse rebounded after sinking to a record low of 3,518 Swiss francs on Monday, showing that markets are giving it “an opportunity to put together a solid plan,” said Ipek Ozkardeskaya, an analyst at Swissquote bank.

With its market value melting by 10 billion Swiss francs earlier this week, Credit Suisse became “a very attractive target for banks that would like to buy a nice wealth management branch,” Benamoux said.

But Credit Suisse has the means to remain independent, he said, and any bid could face political resistance.

“I think the Swiss want Credit Suisse to remain Swiss,” Benamoux said.

In addition to the $10 billion exposure to Greensill, the collapse of US fund Archegos cost Credit Suisse $5 billion.

In addition, Credit Suisse was fined $475 million by US and British authorities in October for loans to state-owned companies in Mozambique.

Koerner, who took the reins in August with the mammoth task of revitalizing the bank, sent an internal message to reassure staff last week, saying Credit Suisse had a “strong capital base and liquidity position”.

But investor concerns reached a fever pitch last weekend with rumors on social media that the bank may be on the brink of a “Lehman moment” — a reference to the US investment firm whose collapse precipitated the global financial crisis 2008.

That sent shares plunging on Monday, as well as raising the cost of buying insurance against Credit Suisse’s debt default.

Analysts, however, played down concerns that the Swiss bank could follow in the footsteps of Lehman Brothers, stressing that it was “too big to fail” and the government would not let it collapse.

The Swiss government bailed out Credit Suisse rival UBS in 2008 when it teamed up with the central bank to set up a fund that absorbed the group’s toxic assets.

Benamou said a government intervention for Credit Suisse was unlikely, as banks were asked to set aside enough cash to weather another crisis after the 2008 financial shock.

In an effort to reassure markets, Credit Suisse announced plans on Friday to buy back up to $3 billion of debt.

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