Mo, Okt 3rd 2022
As shares in Credit Suisse fell by another 10 percent in early trading Monday, the CEO Ulrich Körner attempted to reassure the public that the globally significant Swiss bank has “what it takes to succeed.”
Credit Suisse stock over the past five years dropping to its new record low. (Credit: Fair Value)
The bank has seen its share price plummet by nearly 60 percent this year alone; and, its interest rate on credit default swaps (CDS) – which offer security against a company defaulting on its debt – spiked to 2.47 percent. For reference, the bank’s swaps were sat at 0.57 percent at the beginning of 2022. The latest CDS interest rate is the highest the bank has seen in more than a decade.
Nach Angaben von insiders, Credit Suisse staff spent the weekend reassuring big clients and investors that the bank’s position is solid. Credit Suisse is slated to release a restructuring plan in just 24 days’ time, but it is unclear if the Hail Mary will be enough to save the floundering bank.
Credit Suisse was founded in 1856 in Zürich.
The possible split
A leaked blueprint of the restructuring plan shows that the bank intends to split into three parts: the bank’s advisory board, a “bad bank” to hold high-risk assets, and the rest of its business. The “bad bank” would be slowly decreased, and the advisory board could be transformed in the future. In addition, the plans call for selling off securitized products to prevent a critical rise in capital.
The alarm was first sounded when Credit Suisse directors Blythe Masters and Michael Klein suggested at an internal meeting this month that the bank could offer investment bankers an equity stake in the business. Moreover, the bank’s board is considering reviving its defunct First Boston brand – which was the investment banking division for Credit Suisse until 2006. At any rate, the bank is looking to avoid going to the market for funding given its depressed share prices, which sits at a 30-year low.
Over the summer, former chairman Axel Lehmann installed Ulrich Körner as chief executive along with a brief on how the bank would undergo a “radical shake-up,” including cutting loose about 5,000 employees (roughly 10 percent of their workforce). The dramatic shake-up was proposed after the Zürich-based bank had endured years of scandals, lawsuits, and record trading losses. Lehmann and Körner are working hard to shore up confidence among investors that the bank can be profitable again. (Read more: Credit Suisse in turmoil)
Rival banks UBS and Credit Suisse are neighbors on Zürich’s Paradeplatz.
‘Take a deep breath guys’
“I trust that you are not confusing our day-to-day stock price performance with the strong capital base and liquidity position of the bank,” Körner said in the staff memo over the weekend.
J.P. Morgan analysts agreed. In a note released by the financial institution, JP Morgan analysts said that based on the company’s second quarter financials (total assets of CHF 727 billion), Credit Suisse’s capital and liquidity is “healthy.” This may be because Credit Suisse is one of 30 banks considered “globally significant” by the Bank of International Settlements. Globally significant banks are required to set aside additional capital to safeguard against possible losses, because of their importance to the international financial system.
The bank dropped from a profit of CHF 2.7 billion in 2020 to a loss of CHF 1.65 billion in 2021, mostly due to bad investments in failed supply chain group Greensill and hedge fund group Archegos. In the 2021 collapse of the hedge fund, U.S. authorities have charged Archegos’ founder Bill Hwang and three colleagues with racketeering and fraud charges.
Prominent names in the banking sphere took to Twitter over the weekend to quell online fear mongering. “Take a deep breath guys,” Saba Capital Management’s founder Boaz Weinstein tweeted. He compared the current situation at Credit Suisse to Morgan Stanley’s CDS widening twice as wide in 2011 and 2012.
Blick in die Zukunft
Right now, Credit Suisse faces a capital gap of at least CHF 4 billion, according to analysts at Deutsche Bank AG. Credit Suisse lenders say they are comfortable with the bank’s capital and that it would “be premature to comment on any potential outcomes before” the investors meeting slated for October 27.
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