LONDON, April 26 (IFR) - In a well-flagged move, Credit
Suisse has decided to raise SFr4bn (US$4.02bn) directly from
existing shareholders rather than garnering a similar amount
from spinning off part of its Swiss universal bank, which houses
all its domestic activities.
The bank has had a bruising time with investors in recent
years. The share price has almost halved since chief executive
Tidjane Thiam took over in July 2015, and is still below the
SFr18 level at which the bank raised SFr6bn in October 2015.
However, the shares have bounced back 50% since the
turbulence surrounding June's UK referendum to leave the
European Union and rose a further 1.6%, or SFr0.25 to SFr15.55
after Thiam outlined his latest fundraising plans.
“In 2015 we always said we needed SFr9bn to SFr11bn. We did
SFr6bn in 2015 and generated SFr1bn of capital in 2016 through
restructuring measures and said we would raise up to SFr4bn in
2017,” said Thiam.
“This is not an accidental capital raise. The only question
is how we would do this. Investors knew the capital had to be
raised. There was always a discussion with investors about how
we’d do this.”
He said the bank’s agreement reached in late December with
the US Department of Justice to pay US$5.3bn to settle claims
relating to mis-selling residential mortgage-backed securities
had helped clarify how much extra capital the bank required.
Thiam said investors, many of whom had forced the board to
resubmit executive compensation proposals for this Friday’s
annual general meeting, were generally supportive of the planned
2-for-11 rights issue.
Executive director bonuses for this year and last will be
cut by 40% and there will be no compensation rises for the board
as a whole this year.
“We are confident that leading shareholders will take their
rights. We have every indication that they will,” he said.
Speaking of the disagreement over bonuses, he said: “I have
made a gesture and think we can move the debate forward to focus
on turning around this great bank.”
Credit Suisse itself is acting as global coordinator for the
issue, which is underwritten by Deutsche Bank and Morgan Stanley
as joint lead managers and joint bookrunners. The banking
syndicate will be expanded by including more banks as joint
bookrunners or co-lead managers.
Thiam said the fresh capital would give the group a pro
forma Basel III common equity Tier 1 ratio of 13.4% and allow it
greater flexibility to carry out its strategy, by allowing it to
make more capital-intensive trades for instance.
The proposals need to be approved at an EGM on May 18. The
rights, based on holdings as of May 22 and priced at SFr10.80 a
share, will trade from May 23 to June 2 and have to be exercised
by June 7.
In order to avoid further dilution in future, the group also
committed to scrapping scrip dividends, with payouts only in
Credit Suisse also reported strong first-quarter figures for
its investment banking businesses as they bounced back from a
particularly weak performance in the same period a year earlier.
Investment banking and capital markets saw a 56%
year-on-year rise in net revenues to SFr606m, with debt and
equity underwriting gross revenues up 94% to SFr647m and
SFr208m, respectively. Thiam said this was the best quarter in
four years and that the franchise was gaining market share.
Net revenues at global markets recovered by 29% to SFr1.61bn
despite risk weighted assets attached to the division dropping
by 12%. Credit trading was largely responsible, jumping 133%
Equities continued to struggle as did all trading apart from
equity derivatives in Asia-Pacific, where overall markets net
revenues fell 41% year-on-year to SFr292m. Rates was singled out
as particularly weak. Asia-Pacific figures are not included in
the global markets divisional results.
Across the group net revenues rose 19% year-on-year to
SFr5.53bn. Costs not related to compensation fell 15% on a
constant FX basis to SFr4.6bn, the lowest level since 2013,
allowing the group to report a pre-tax profit of SFr670m.
“We view these as impressive results, particularly from
Global Markets. The SFr4bn capital raise should remove one of
the last remaining concerns on the stock,” said Andrew Coombs,
analyst at Citigroup. He estimated the rights issue would be
done at a TERP discount of 28%.
Thiam said the disappointing results in Asia-Pacific markets
were being addressed, saying that both the equities and fixed
income divisions needed to be “right-sized”.
(Reporting by Christopher Spink)