By Oliver Hirt and Michael Shields
ZURICH - Credit Suisse saw its shares slide by as much as 11.5% and its bonds hit record lows on Monday as concerns grew about the bank's ability to revamp its business and bolster its capital after a string of losses precipitated a strategy reboot.
The bank, one of the largest in Europe and one of Switzerland's global systemically important banks, has been hit with a string of troubles. It has had to raise capital, halt share buybacks, cut its dividend and revamp management after losing more than $5 billion from the Archegos collapse in March 2021, when it also had to suspend client funds linked to failed financier Greensill.
The bank has been working on a restructuring plan it is scheduled to unveil with third-quarter earnings on Oct. 27.
"The key issue is the viability of the bank following its upcoming strategic review," wrote ABN AMRO analyst Joost Beaumont, who added that adverse market conditions have raised the "execution risk of any strategic review."
While Credit Suisse's recent problems were well known and there had been no major recent developments, Swiss regulator FINMA and the Bank of England in London, where the lender has a major hub, were monitoring the situation and working closely together, a source familiar with the situation told Reuters.
The Bank of England, FINMA and the Swiss finance ministry declined to comment.
Chief Executive Ulrich Koerner last week told staff that Credit Suisse, whose market capitalisation dropped to a record low of 9.73 billion Swiss francs ($9.85 billion) on Monday, has solid capital and liquidity. Still, bank executives spent the weekend reassuring large clients, counterparties and investors about its liquidity and capital, the Financial Times reported on Sunday.
A Credit Suisse spokesman declined to comment on the FT report. The weekend calls followed a sharp rise in spreads on the bank's credit default swaps (CDS), which offer protection against a company defaulting on its debt, the FT said.
Credit Suisse CDS soared again on Monday, adding 105 basis points from Friday's close to trade at 355 bps, their highest level in at least more than two decades. The bank's CDS stood at 57 bps at the start of the year.
Still, broadly investors were not panicking about wider risk.
"It’s immaterial to the general systemic risk, and they’ll be recapitalized by the public markets if the environment is good in a month or two, or they’ll be backstopped by the Swiss government if the environment is bad," said Thomas Hayes, chairman and managing member of New York-based Great Hill Capital.
GRAPHIC - Credit Suisse CDS spike
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Meanwhile the lender's international bonds also showed the strain. Credit Suisse's euro-denominated bonds dropped to record lows, with longer-dated bonds suffering the sharpest declines, though clawed back some losses in the afternoon.
The shares, down by more than half this year, came off early lows and were down 0.4% at 3.96 Swiss francs at 1500 GMT.
In July, Credit Suisse announced its second strategy review in a year and replaced its CEO, bringing in restructuring expert Koerner to scale back investment banking and cut more than $1 billion in costs.
The bank is considering measures to scale back its investment bank into a "capital-light, advisory-led" business, and is evaluating strategic options for the Securitized Products business, Credit Suisse has said.
Citing people familiar with the situation, Reuters reported last month that Credit Suisse was sounding out investors for fresh cash as it attempts its overhaul.
LIQUIDITY 'HEALTHY'
JPMorgan analysts in a research note on Monday said that based on its financials at the end of the second quarter, they view Credit Suisse's capital and liquidity as "healthy."
Given that the bank has indicated a near-term intention to keep its CET1 capital ratio at 13-14%, the second-quarter end ratio is well within that range and the liquidity coverage ratio is well above requirements, the analysts added.
Credit Suisse had total assets of 727 billion Swiss francs ($735.68 billion) at the end of the second quarter, of which 159 billion francs was cash and due from banks, while 101 billion francs was trading assets, it noted.
Still, investors are questioning how much capital the bank may need to raise to fund the cost of a restructuring, analysts at Jefferies wrote in a note to clients on Monday. Also, the bank is now potentially a forced seller of assets, they said.
Deutsche Bank analysts in August estimated a capital shortfall of at least 4 billion francs.Over the past three quarters alone, Credit Suisse's losses have added up to nearly 4 billion Swiss francs. Given the uncertainties, the bank's financing costs have surged.
($1 = 0.9882 Swiss francs)
