Stock at low due to concerns about capital increase

The big bank is negotiating internally about its new strategy and structure, which it intends to present at the end of October. Fragments from these negotiations are made public again and again; they are currently causing massive damage to the bank’s share price.

The major bank Credit Suisse is in the middle of a major restructuring. Looking at the construction site is currently making investors very insecure.

Arnd Wiegmann / Reuters

Credit Suisse (CS) is not resting in the run-up to its next big change in strategy and austerity measures. The share price fell to a new low of 4.26 francs on Friday morning, after stocks had already lost heavily on Thursday afternoon. The stock market value of the bank has thus more than halved since the beginning of the year. At the end of February 2021, CS titles were worth three times what they are today.

CS stock hits a new low

Credit Suisse Group AG share price, in Swiss francs

Many considerations, few facts

The background to the fall in the price is the great uncertainty as to how the bank will continue. At the end of October, CS will present the results of its latest strategy review. On the one hand, further cuts in the troubled investment banking unit are expected, on the other hand, a drastic, group-wide savings program. The CS leadership had announced both when presenting their half-year results, but without going into detail. CS only announced that it would consider selling its New York-based structured products business.

The news agencies are currently outdoing each other with references to what changes the bank will actually communicate at the end of October; each with reference to internal sources. As a rule, CS itself does not comment on the rumors, except with the iron-clad reference to October 27: Only then will one communicate.

The ideas that are currently being discussed publicly are not far-fetched for the most part, but are sometimes contradictory. The news agency “Reuters” reported early on Thursday evening that CS was exploring the willingness of major investors for a capital increase. This news triggered the recent price decline. Reuters had already reported in the spring that CS was examining ways to strengthen its capital base. The bank denied this at the time.

Since CS only has a stock market value of CHF 11 to 12 billion at the current prices, a capital increase worth billions would inevitably lead to a strong dilution of the shares. Whether CS has to raise capital depends on a number of factors: for example, the further course of business, the outcome of certain legal proceedings and the success of the current and future savings efforts.

At the end of June 2022, CS had a core capital ratio (CET1) of 13.5 percent. While that was below the previously communicated target of 14 percent, it wasn’t a particularly weak figure on its own. However, the half-year figures also showed that ongoing business was being severely affected by the market turbulence and the restructuring of the bank.

In addition, Reuters reported on Thursday, the big bank is considering exiting the US market. For once, CS has decidedly denied the latter. The bank now has a physical investment banking business in the US, but not retail banking.

patient investment bank

The “Financial Times” had already reported on Thursday morning, the board of directors of the bank is examining a tripartite division of its investment bank: The first part would comprise the advisory business, which is to be retained for the time being. The second part should include certain high-risk investments from the trading and financing business. This “bad bank” could then be scrapped step by step. In the third part, the rest of the trading and financing business would be bundled. According to the British financial newspaper, however, the CS leadership wants to avoid a capital increase at the current hour. That also seems plausible given the impending dilution mentioned.

Meanwhile, “Bloomberg” reported a week ago that Credit Suisse was considering running its US investment banking under the old name “First Boston” again. However, an immediate spin-off is not up for debate, according to Bloomberg sources. With the gradual purchase of the US bank First Boston, the major Swiss bank had taken the decisive step towards building up its own investment banking. However, the First Boston name had been history since 2005.

In essence, however, these plans are all still “considerations”: options that the board of directors around President Axel Lehmann is considering. However, it is clear that he will soon have to address the serious problems of the CS investment bank together with the management team around the new CEO Ulrich Körner. This is currently sitting between chair and bank: The business is already suffering from the cuts that have already been made (and in parts, for example in the consulting business with IPOs, from the difficult market environment), without the costs having fallen to the same extent.

The big bank is likely to want to sit out the current storm of reports. If CS actually sticks to its plan to communicate on October 27th, the board of directors should only make its final decision on the future of the group a few days before. Price-sensitive facts must be announced to the public quickly, which is required by the stock exchange rules.

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