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Credit Suisse clarifies capital plans
April 26, 2017 / 11:47 AM / 8 months ago

Credit Suisse clarifies capital plans

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 cash instead.


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% year-on-year.

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)

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