Credit Suisse saw sharp falls in its shares and bonds on Monday as markets put the bank under intense scrutiny. The Swiss bank has insisted its capital and liquidity are strong, saying it will have more to say about a strategic revamp when it releases third-quarter results on Oct. 27.
A string of losses, high-profile risk management failures and changes of top leadership have drawn investor scrutiny of Switzerland’s second-biggest bank. Credit Suisse had to raise capital, halt share buybacks, cut its dividend and revamp management after losing more than $5 billion from the Archegos collapse in March 2021, when it also had to suspend client funds linked to failed financier Greensill.
Credit Suisse has said it wants to strengthen its wealth management franchise, scale back its investment bank into a “capital-light, advisory-led” business, and evaluate strategic options for the Securitized Products business. Analysts estimate it could face a capital shortfall of around 4-6 billion Swiss francs, depending on what it does to scale back its investment bank and how much it raises from asset sales, to restructure, support growth and have a safety cushion.
“Asset sales will help but 4 billion Swiss francs is likely to come in the form of a highly dilutive capital raise. The good news is some of this is already in the share price,” analysts at Keefe, Bruyette & Woods wrote in a note.
A directed capital increase at a major shareholder could be an option. As a last resort, Credit Suisse could seek state aid.
Since its foundation in 1856, Credit Suisse has played a central role in the history and development of Switzerland. It was set up by Swiss politician and businessmen Alfred Escher to finance the country’s railways and support industrialisation.
Through a series of mergers and acquisitions, it has grown to become the second-biggest lender in Switzerland and one of the biggest banks in Europe.
It had just over 50,000 employees and 1.6 trillion Swiss francs ($1.62 trillion) in assets under management at the end of 2021.
Credit Suisse has a domestic Swiss bank plus wealth management, investment banking and asset management operations.
The Swiss National Bank has designated it one of Switzerland’s global systemically important banks, whose failure would cause “significant harm to the Swiss economy and financial system”.
Credit Suisse shares have fallen more than 55% this year, while its euro-denominated bonds hit record lows on Monday.
Credit default swaps for Credit Suisse – instruments used to insure exposure to the lender’s debt – stood at 250 basis points (bps) on Monday – a sharp increase from the 57 bps at the start of the year.