- To buy back up to $3 billion in debt
- Seen as bid to reassure nervous investors
- Move comes weeks ahead of planned overhaul
- Shares up as much as 3% in early trade
Credit Suisse (CSGN.S) will buy back up to 3 billion Swiss francs ($3 billion) of debt, the embattled Swiss bank said on Friday, making a show of strength as it seeks to reassure investors after a tumultuous week.
The move trims the bank’s debts and is an attempt to bolster confidence after steep falls in its stock price and bonds. Unsubstantiated rumours that its future was in doubt have swirled on social media amid concern it may need to raise billions of francs in fresh capital.
One of the largest banks in Europe, Credit Suisse is embarking on a radical turnaround after 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 last weekend reassuring large clients and investors about its financial strength, seeking to dispel speculation about its future.
CEO Ulrich Koerner also told staff in a memo that it has sufficient capital and liquidity.
But his words only fuelled rumours about the bank, as a social media storm gathered pace, triggering a sell-off of its stock.
The bank said the debt buyback would “allow us to take advantage of market conditions to repurchase debt at attractive prices”.
Investors took heart. 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 might be reassuring to some investors,” said Vontobel analyst Andreas Venditti. “If bought below par, a gain results that will increase capital slightly.”
TROUBLED CHAPTER
Earlier this week, in an unusual step, the Swiss National Bank, which oversees the financial stability of systemically important banks in Switzerland, said it was monitoring the situation at Credit Suisse.
Banks are deemed systemically important if their failure would undermine the Swiss economy and financial system.
The move is reminiscent of a multi-billion-euro debt buyback by Deutsche Bank in 2016, when it faced a similar crisis and doubts over its future.
Dixit Joshi, a former Deutsche executive, has recently joined Credit Suisse as finance chief.
Zuercher Kantonalbank said the bonds are currently trading at a high discount, which allows Credit Suisse to cut debt at a low cost. Analyst Christian Schmidiger said the move was also a “signal that Credit Suisse has sufficient liquidity”.
Credit Suisse said it was making a 1 billion euro cash tender offer in relation to eight euro or pound sterling denominated senior debt securities and another offer to buy back 12 U.S. dollar denominated senior debt securities for up to $2 billion.
The developments unfolded after sources recently told Reuters that Credit Suisse was sounding out investors for fresh cash, approaching them for the fourth time in around seven years.
Under a restructuring launched by Chairman Axel Lehmann, the bank envisions shrinking its investment bank to focus even more on its flagship wealth management business. Chiefly, he hopes to close a troubled chapter for the bank and repair its reputation.
Over the past three quarters alone, losses have added up to nearly 4 billion Swiss francs. Given the uncertainties, the bank’s financing costs have surged.
The bank is due to present its new business strategy on Oct. 27, when it announces third-quarter results.
Rating agency Moody’s Investors Service expects losses for Credit Suisse to swell to $3 billion by year-end, Moody’s lead analyst on the bank told Reuters on Thursday.
The bank has also said it is looking to sell its upmarket Savoy Hotel, one of the best-known hotels in Zurich.
($1 = 0.9897 Swiss francs)
