ZURICH Oct 7 (Reuters) – Credit Suisse (CSGN.S) It will buy back up to 3 billion Swiss francs ($3 billion) of debt, an attempt by the Swiss bank to show its financial muscle and reassure investors concerned about the lender’s review and how much it may cost.
Speculation about the bank’s future pace mounted on social media last week amid anticipation that it may need to raise billions of francs in fresh capital, sending its shares and some bonds to new lows.
The buyback trims the bank’s debts and is an attempt to bolster confidence. But the central questions about its restructuring, and whether or not it will need fresh capital to finance it, remain open.
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Credit Suisse, one of Europe’s biggest banks, is trying to recover from a series of scandals, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to failed financier Greensill.
Bank executives spent the past weekend reassuring large clients and investors about its financial strength. CEO Ulrich Koerner also told staff in a memo that he had sufficient capital and liquidity. read more
Seeking to underscore this, the bank said the buyback “would allow us to take advantage of market conditions to buy back debt at attractive prices.”
Investors cheered. Credit Suisse shares gained as much as 3% in early trading on Friday, while the price of its euro-denominated bonds rose.
“It’s an opportunistic move to take advantage of market conditions that could reassure some investors,” said Andreas Venditti, an analyst at Vontobel. “If you buy below par, you make a profit that will slightly increase your capital.”
Rating agency Moody’s said the move was likely intended to stabilize the bank’s debt spreads ahead of its next strategic announcement and show the bank is comfortable with its liquidity position.
“In addition, CS should post a capital gain as its senior unsecured bonds are trading at around 75 cents on the dollar. The capital gain will boost CS’s capital position, a positive credit,” said Alessandro Roccati, an analyst at Moody’s.
On Friday, the price of Credit Suisse’s five-year credit default swaps fell 24.5 basis points to 311.5 bps, indicating increased confidence in the bank.
PROBLEMATIC CHAPTER
Earlier this week, in an unusual move, the Swiss National Bank, which oversees the financial stability of systematically important banks in Switzerland, said was monitoring the situation at Credit Suisse.
Banks are considered systemically important if their failure would undermine the Swiss economy and financial system.
Credit Suisse’s move is reminiscent of a multibillion-dollar debt buyback by Deutsche Bank in 2016, when it faced a similar crisis and doubts about its future.
Dixit Joshi, a former Deutsche executive, recently joined Credit Suisse as CFO.
Zuercher Kantonalbank said the bonds were currently trading at a deep discount, allowing Credit Suisse to reduce debt cheaply. Analyst Christian Schmidiger said the move was also a “sign that Credit Suisse has enough liquidity.”
Credit Suisse said it was making a €1 billion cash takeover bid for eight euro or sterling-denominated senior debt securities and another offer to repurchase 12 US dollar-denominated senior debt securities for up to €2 billion. of dollars.
The developments unfolded after sources recently told Reuters that Credit Suisse was canvassing investors for fresh cash, approaching them for the fourth time in around seven years.
Under a restructuring launched by Chairman Axel Lehmann, the bank plans to scale back its investment banking to focus even more on its flagship wealth management business.
In the last three quarters alone, losses have totaled nearly 4 billion Swiss francs. Given the uncertainties, the bank’s funding costs have skyrocketed.
The bank will present its new business strategy on October 1. 27, when it announces the results of the third quarter.
Rating agency Moody’s Investors Service expects Credit Suisse’s losses to rise to $3 billion by the end of the year, Moody’s chief analyst on the bank told Reuters on Thursday. read more
The bank has also said it is looking to sell its Savoy luxury hotel, one of Zurich’s best-known hotels. read more
($1 = 0.9897 Swiss francs)
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Written by John Revill and John O’Donnell; additional reporting by Amanda Cooper in London and Noele Illien in Zurich; edited by Jason Neely, Mark Potter and Louise Heavens
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