Credit Suisse seeks to calm market jitters
In talking points updated Sunday for its bankers and relationship managers, Credit Suisse emphasized its capital buffers
Credit Suisse Group AG tried to assuage fears about its health in a memo to employees and in a round of phone calls to investors and clients over the weekend, according to people familiar with the matter.
Credit Suisse shares tumbled 9% early Monday and are down nearly 30% over the past month. Spreads on its credit-default swaps, a type of insurance against default, rose to their highest level of the year on Friday. The deteriorated market condition indicates that Credit Suisse could struggle to raise new shares to pay for a planned restructuring and that its funding costs could rise sharply.
There hasn’t been a formal approach to any shareholders about issuing new shares, the people familiar with the matter said.
Credit Suisse Group
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Credit Suisse in late July said it would refashion its investment bank and exit some other businesses to become a leaner, less risky institution, following financial disasters that included a $5.1 billion hit last year from client Archegos Capital Management.
The Swiss bank has a large domestic business serving all types of customers and competes globally in wealth management, investment banking and asset management. Its stock has traded below book value, a commonly followed metric by investors, for years as a succession of executive teams struggled to contain problems within the bank.
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In a memo to staff on Friday, CEO Ulrich Körner told employees that the bank is at a critical moment before it presents a strategy update outlining plans for the investment bank on Oct. 27. He said not to confuse its stock price performance with its capital strength and liquidity.
The memo appeared to spark fresh concerns and spilled into an online frenzy on Twitter and on Reddit investment discussion boards on Saturday and Sunday.
In talking points updated on Sunday for its bankers and relationship managers, Credit Suisse said it has close to a $100 billion capital buffer and continues to expect a 13% to 14% ratio for its highest quality equity capital through the rest of the year.
According to the points, viewed by the Wall Street Journal, Credit Suisse’s high quality liquid assets were around $238 billion at the end of June. That hasn’t changed materially since then, a person familiar with the matter said. Credit Suisse’s leverage exposure was around $873 billion at the end of June, according to its second-quarter financial statements.
Credit Suisse shares are down nearly 30% over the past month. (Spencer Platt/Getty Images / Getty Images)
Some of the investor concern around Credit Suisse’s health has centered around its leveraged finance portfolios, which the bank said totaled $5.9 billion at June 30. It was among the top lenders to the leveraged buyout of Citrix Systems Inc., a deal that left a consortium of banks with losses.
Another area of focus is its securitized products group, with around $75 billion in gross exposure to mortgage bonds and asset finance. In July, Credit Suisse said it could bring down the capital funding the group with an outside investor, but hasn’t signed a deal yet.
In his memo Friday, Körner compared Credit Suisse to a rising phoenix that will be sustainable for the long term. The bank was founded by entrepreneur-financier Alfred Escher in 1856.
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The bank is Switzerland’s second-largest by assets, after UBS Group AG, which faced its own existential crisis and needed a government bailout in the 2008 financial crisis, followed by a major restructuring. UBS has since emerged as the stronger of the pair.