Hopes run high for Credit Suisse multi-billion cash call

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Credit Suisse on Thursday headed into the final stage of a 4 billion Swiss francs ($4.25 billion) cash call that it hopes will allow an overhaul to draw a line under years of scandals.

Despite widespread market uncertainty, five bankers involved in Thursday’s 2.2 billion-franc rights issue said they were confident investors would take up more than 90% of the offer and leave them to mop up only a residual amount of shares.

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Credit Suisse has already placed some 1.8 billion francs worth of shares with a group of institutional investors led by Saudi National Bank.

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The five bankers, who asked not to be named, pointed to the stock’s improved performance over the last few days, as well as the volume of rights changing hands, as a sign that investors were buying into the capital increase.

The result is expected to be announced after market close on Thursday.

Credit Suisse declined to comment.

The combined 4 billion franc package is meant to fund a turnaround and strengthen the Swiss lender, as it strives to move on from scandals and heavy losses that prompted speculation about its future and led to large withdrawals by customers.

The capital hike addresses one of the many challenges the Swiss bank faces.

“The rights issue is the necessary start to the process, said Jerome Legras of Axiom Alternative Investments. “But it is only the start of a long and painful journey.”

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Credit Suisse, Switzerland’s second largest bank, has been battered by mishaps, including a $5.5 billion loss from the unraveling of U.S. investment firm Archegos.

It also had to freeze $10 billion worth of supply chain finance funds linked to insolvent British financier Greensill.

At the end of October, Credit Suisse said it planned to cut thousands of jobs and shift its focus away from investment banking and towards less turbulent wealth management.

REVAMP AND RECORD LOWS

Credit Suisse shares, which have plumbed record lows, were buoyed last week as its leadership sought to reassure markets.

After closing above 3 Swiss francs on Monday, they have retreated slightly, finishing Wednesday’s session at 2.851 Swiss francs.

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Crucially, they have held above the deal subscription price of 2.52 Swiss francs and were at 2.821 Swiss francs, down around 1% in mid-session trade on Thursday.

Investors had rushed to sell any unexercised rights ahead of Tuesday’s rights trading deadline, sources said. Rights give holders the option to buy shares at a discount through the capital increase and thus carry monetary value.

A wide spread between a company’s share price during a rights issue and the deal’s subscription price is often seen as indicative of market appetite.

If shares drop below the issue price, investors can buy them cheaper on the open market, leading to a lower deal take-up and potentially saddling underwriting banks with leftover stock.

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Despite the rights issue and share placement that made Saudi National Bank an anchor shareholder, Credit Suisse still needs nearly flawless execution of a turnaround plan unveiled in October whose key components remain short on detail.

Chairman Axel Lehmann this week flagged another loss in 2023 for the bank hit by client outflows.

The share price’s fall to record lows has brought its market value to below 12 billion Swiss francs, roughly the same as that of Swiss private bank Julius Baer.

The bank’s planned revamp includes an increased focus on the flagship wealth management business while pruning back investment banking.

Credit Suisse has agreed to sell most of its Securitized Products Group and related financing businesses to U.S. buyout fund Apollo Global Management in a deal to free up capital but whose details are still months away from emerging.

It also needs to spell out how it plans to spin off its investment bank CS First Boston into a new entity focused on advisory work such as mergers and acquisitions and arranging deals on capital markets.

The bank envisions selling a stake in CS First Boston but could keep half. ($1 = 0.9415 Swiss francs) (Additional reporting by Michael Shields and Oliver Hirt in Zurich; Editing by John O’Donnell and Barbara Lewis)