Credit Suisse to raise $5.6b in rights issue

Mr Tidjane Thiam said the capital raise will strengthen the bank's balance sheet and allow it to invest in growth at highly attractive returns. The bank reported net profit of 596 million Swiss francs for the first three months of the year.
Mr Tidjane Thiam said the capital raise will strengthen the bank's balance sheet and allow it to invest in growth at highly attractive returns. The bank reported net profit of 596 million Swiss francs for the first three months of the year.PHOTO: BLOOMBERG

Bank drops plans for an IPO for minority stake in its Swiss unit

ZURICH • Credit Suisse will raise around 4 billion Swiss francs (S$5.6 billion) through a rights issue to catch up with European rivals on capital, ditching plans to float a minority stake in its Swiss banking unit.

Keen to shore up its balance sheet, Switzerland's second-biggest bank had announced in 2015 plans to sell 20 per cent to 30 per cent of its highly profitable Swiss business through an initial public offering for up to 4 billion Swiss francs.

However, Mr Tidjane Thiam, who took over as chief executive officer in July 2015, said in February the bank was examining alternatives to the IPO, which had been pencilled in for the second half of this year.

He said in a statement yesterday: "This capital raise will allow us to continue to invest in growth at highly attractive returns; to strengthen balance sheet resilience for our clients and other stakeholders; and to afford the costs associated with our ongoing restructuring plans."

The bank expects to have a common equity Tier 1 (CET1) ratio, a closely watched measure of balance sheet strength, of approximately 13.4 per cent and a tier 1 leverage ratio of around 5.1 per cent.

Reuters had reported that Credit Suisse was considering a stock sale at group level and was likely to make a decision this month on how to proceed.

After Germany's Deutsche Bank raised cash from the market earlier this year, Credit Suisse had risked being one of the lower-capitalised banks in its peer group despite having tapped shareholders for around 6 billion Swiss francs in late 2015.

"The capital raise should be enough to allay concerns in the near term but doesn't really give the franchise the flexibility to see it through a downturn or meaningfully compete in (investment banking business) global markets," analysts at Bernstein wrote.

"We feel this raise doesn't really take capital totally out of the concern zone - just makes it cycle/earnings dependent for the next 12 months," said Bernstein, which rates the stock "underperform".

The bank reported net profit of 596 million Swiss francs for the first three months of the year, its highest quarterly profit since a sweeping restructuring launched by Mr Thiam and beating even the highest estimate in a Reuters poll of analysts.

The results provide some relief for Credit Suisse, which has faced an investor revolt over proposed bonuses to the bank's top managers and raids at three of its offices in a Dutch-led tax evasion investigation.

Credit Suisse is also coming off 5.65 billion Swiss francs in losses since 2015 amid Mr Thiam's push to grow in wealth management while shrinking the investment bank, a shift that the bank expects will cost more than 10,000 jobs.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 27, 2017, with the headline 'Credit Suisse to raise $5.6b in rights issue'. Print Edition | Subscribe