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Exclusive: Credit Suisse Weighs Options to Strengthen Capital

Exclusive: Credit Suisse Weighs Options to Strengthen Capital

Credit Suisse’s logo is seen at its headquarters on Paradeplatz in Zurich, Switzerland, on October 1, 2019. REUTERS/Arnd Wegmann/File Photo

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ZURICH, May 31 (Reuters) – Credit Suisse Bank (CSGN.S) Two people familiar with the matter told Reuters that it is in the early stages of evaluating options to boost its capital after a series of losses eroded its financial reserves.

The size of the increase is likely to exceed 1 billion Swiss francs ($1.04 billion), but that has yet to be determined, said one person, who declined to be named because deliberations are still internal.

The cash injection will help Switzerland’s second-largest bank recover from billions of losses it incurred in 2021 and a series of costly legal troubles.

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This person said selling shares to some of the existing major investors is the preferred option, but Credit Suisse hasn’t ruled out taking advantage of all shareholders.

The other person said that selling a business, such as Credit Suisse’s asset management division, is also a possibility. They said the bank had not yet decided on any possible action. No deal was envisaged for the second half of this year.

“Credit Suisse is not currently considering raising additional capital,” the bank said in a statement.

“The group is strongly capitalized with a CET1 of 13.8% and a leverage of CET1 of 4.3%. Asset management is a core part of our group strategy that was introduced last November, with four core divisions.”

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The CET1 ratio is a key measure of a bank’s financial strength.

Credit Suisse shares are down about 3% in early trade.

“If the news is confirmed, it indicates more potential pain than we currently anticipate,” Jefferies analysts wrote in a research note.

Analysts suggested that the move could reflect lower-than-expected earnings or a support plan in the event that the revenue and cost environment does not improve as expected in 2023.

low debt

Credit Suisse suffers billions of dollars in losses in 2021 through failed investments, as well as the impact of several legal cases, including a court case in Bermuda that could cost about $600 million. Read more

The bank has been trying to reform its risk management culture as well as turn the page on a series of scandals, which have led to several waves of management changes, abrupt departures, and internal and external investigations.

The bank’s shares have fallen by more than a fifth in the past year.

Both Fitch and Standard & Poor’s downgraded Credit Suisse’s debt rating this month. Read more

One of the sources said the annual FINMA assessment of major Swiss banks put the Credit Suisse score at 4, unchanged from last year, the lowest score possible.

This source said that one of the watchdog’s main concerns is group-wide capitalization.

Finma declined to comment.

The capital increase deliberations come just one year after the Swiss bank raised about CHF1.75 billion from investors via mandatory convertible bonds. Read more

In April, Credit Suisse played down the need for new capital even as it reported a first-quarter loss that only exacerbated its financial pain. Read more

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Credit Suisse executives said at the time that capital could remain restricted over the next six months as the bank continues to make significant outlays toward compliance and risk, but a source familiar with the matter said a capital increase was not under consideration at the time.

The bank’s core capital ratio declined to 13.8% at the end of the first quarter of 2022 from 14.4% at the end of 2021.

But the new capital increase will support Credit Suisse’s balance sheet and also send a positive signal. One of the sources said that if well-known investors provide the bank with fresh cash, this could be seen as a sign of confidence.

(1 dollar = 0.9572 Swiss francs)

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(Covering) Written by Oliver Hurt, Editing by Jane Merriman

Our criteria: Thomson Reuters Trust Principles.