New York October 15 2022: Credit Suisse Group AG has held talks with several banks about underwriting a potential capital increase in case it needs to shore up its balance sheet, according to people familiar with the matter.
The Zurich-based bank would prefer to avoid selling new shares at current depressed levels, but is making preparations should the step be necessary, people familiar with the matter said, declining to be identified because the information is private.
Credit Suisse is less than two weeks away from unveiling what’s expected to be a major overhaul after a string of high profile losses and scandals. While the restructuring could cost in the billions, the lender has yet to give details on how it will be financed, beyond a full or partial sale of its securitized products business. The bank is also considering the sale of its Latin American wealth management business and other assets in the drive to avoid a rights issue, Bloomberg has reported.
Credit Suisse may be able to hold off raising capital as part of the Oct. 27 announcement because any write-downs on assets and businesses it plans to sell may only come further down the line, some people said. The lender plans to transfer into a so-called ‘bad bank’ assets that it plans to unwind. It will slowly exit businesses and positions over a period of time, allowing the bank to release costs and capital as the revenues dissipate, one of the people said.
Credit Suisse declined to comment.
But Credit Suisse still wants to be prepared for all options, including the chance that its shares could rally in coming months and make an equity offering less dilutive, said the people. Chairman Axel Lehmann reiterated on Friday that the bank’s key capital ratio will be between 13% and 14% at the end of the year, within its expected range.
Analysts have pinned varying price tags on the bank’s restructuring and probability that it will need to raise capital. The more ambitious the restructuring plan, the more likely the bank will have to raise capital, Morgan Stanley banking analyst Magdalena Stoklosa wrote in a note to investors this week. Goldman Sachs Group Inc. analyst Chris Hallam said that the bank could face a 4 billion Swiss franc shortfall to pay for its restructuring at a time when capital generation has been muted.
Several interested parties for the SPG business have already emerged, including Mizuho Financial Group Inc., Apollo Global Management Inc., Centerbridge Partners, Pimco and Sixth Street. Credit Suisse has said the securitized products platform is highly profitable and employs about $20 billion in risk-weighted assets and roughly $75 billion of leverage exposure, which is a regulatory measure of assets.
Credit Suisse is also exploring the separation of its advisory teams and leveraged finance business into a new unit, potentially under a revived First Boston brand, and potentially looking for an outside investor.