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Credit Suisse reassures investors over bank’s financial strength

Senior Credit Suisse executives spent the weekend reassuring large clients, counterparties and investors about the Swiss bank’s liquidity and capital position in response to concerns raised about its financial strength.

Executives hit the phones after spreads on the bank’s credit default swaps, which offer protection against a company defaulting, rose sharply on Friday, indicating investor worries over its financial health.

“The teams are actively engaging with our top clients and counterparties this weekend,” said a Credit Suisse executive involved in the discussions. “We are also getting incoming calls from our top investors with messages of support.”

The executive denied recent press articles that Credit Suisse had formally approached investors about potentially raising more capital, insisting that the bank was trying to avoid such a move with its share price at record lows and higher borrowing costs due to rating downgrades.

Having seen Credit Suisse’s share price drop more than 25 per cent last month to below CHF4, chief executive Ulrich Körner sent a company-wide memo on Friday to try to reassure staff over the bank’s capital position and liquidity.

His move also followed a sharp rise in credit default swaps, a gauge of investor sentiment towards risk, that have jumped more than 50 basis points over the past two weeks, hitting 250bp on Friday.

In a subsequent briefing note on topics to discuss with clients sent to Credit Suisse executives on Sunday, following rumours about the bank’s financial health on social media, staff were told: “A point of concern for many stakeholders, including speculation by the media, continues to be our capitalisation and financial strength.

“Our position in this respect is clear. Credit Suisse has a strong capital and liquidity position and balance sheet. Share price developments do not change this fact.”

A top executive at a firm that was contacted by Credit Suisse said his view was that the lender was “the worst big bank in Europe”, but it was not in immediate danger.

“We are not having meetings on this topic,” he said. “I don’t think it’s a crisis.” The bank’s falling share price reflects its deep woes and the lack of any obvious solution, the executive said.

Concealed expensive liabilities?

While the local Swiss bank is highly profitable and the global private bank still has a strong brand, potential investors and buyers are concerned that the investment banking arm could have concealed expensive liabilities.

Körner and the bank’s board, chaired by fellow former UBS executive Axel Lehmann, are due to present a plan to revamp the business to address the investor concerns on October 27 along with its third-quarter results.

Analysts at Deutsche Bank last month estimated the restructuring would leave a CHF4-billion hole in Credit Suisse’s capital position.

“We will be doing asset sales and divestitures just so we can fund this very strong pivot we intend to achieve towards a stable business,” said the senior executive at the bank involved in investor calls.

Credit Suisse declined to comment.

Korner, who previously ran Credit Suisse’s asset management business, was installed as chief executive over the summer with a brief to strip back the group’s investment bank and slash costs — moves that are likely to lead to thousands of job cuts.

The board’s latest plan is to split the investment bank into three and resurrect a “bad bank” holding pen for high-risk assets and business units earmarked for disposal, the Financial Times has reported.

“No doubt there will be more noise in the markets and the press between now and the end of October,” Körner wrote on Friday. “All I can tell you is to remain disciplined and stay as close as ever to your clients and colleagues.”

Uncertainty over the bank’s future has already led to a number of executive departures. Jens Welter, who had been co-head of global banking, is the most recent high-profile defector, having agreed to join Citigroup.

Additional reporting by Brooke Masters in New York

Copyright The Financial Times Limited 2022

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