Credit Suisse Pays Debt to Appease Investors

  • The bank will buy back up to $3 billion in loans
  • Bid to reassure investors
  • The move comes weeks ahead of a planned overhaul

ZURICH, Oct 7 (Reuters) – Credit Suisse (CSGN.S) The 3 billion Swiss francs ($3 billion) debt buyback is an attempt to show the Swiss bank’s financial strength and reassure investors concerned about the lender’s restructuring and how much it will cost.

Speculation about the bank’s future has gathered pace on social media in the past week amid expectations it will raise billions of francs in new capital, sending its shares and some bonds to new lows.

The withdrawal reduces the bank’s liabilities and is an attempt to boost confidence. But central questions about its restructuring — and whether or not new capital is needed to finance it — remain open.

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Credit Suisse, one of Europe’s biggest banks, is struggling to recover from a string of scandals, including last year’s loss of more than $5 billion from the collapse of investment firm Archegos.

Bank executives last weekend assured large customers and investors of its financial strength. Chief Executive Officer Ulrich Koerner said in a note to employees that it had sufficient capital and liquidity. read more

Seeking to underline this, the bank said the withdrawal would “allow it to take advantage of market conditions to buy back debt at attractive rates”.

Investors were heartbroken. Credit Suisse shares rose as much as 3% in early trade on Friday, while the price of its euro-denominated bonds rose.

“This is an opportunistic move to take advantage of market conditions that may be reassuring for some investors,” Vontopal analyst Andreas Venditti said. “Buying below par is a profit that increases capital a bit.”

Complicated episode

Earlier this week, in an unusual move, the Swiss National Bank, which oversees the financial stability of Switzerland’s systemically important banks, said it was monitoring the situation at Credit Suisse.

Banks are considered systemically critical if their failure undermines Switzerland’s economy and financial system.

Credit Suisse’s move is reminiscent of Deutsche Bank’s multibillion-euro bailout in 2016, when it faced a similar crisis and doubts about its future.

Dixit Joshi, a former Deutsche executive, recently joined Credit Suisse as head of finance.

Zuercher Kantonalbank bonds are currently trading at a steep discount, which allowed Credit Suisse to lower the debt at a lower cost. Analyst Christian Schmidiger also called the move “a signal that Credit Suisse has sufficient liquidity.”

Credit Suisse said it would make a €1 billion cash tender offer in respect of eight euro- or sterling-denominated senior debt securities and another offer to buy back up to $2 billion of 12 US dollar-denominated senior debt securities.

The developments emerged after sources told Reuters recently that Credit Suisse was encouraging investors for fresh money, approaching them for the fourth time in seven years.

Under a restructuring initiated by chairman Axel Lehman, the bank is shrinking its investment bank to focus even more on its core wealth management business.

In the past three quarters alone, losses have added up to nearly 4 billion Swiss francs. In the face of uncertainty, the bank’s funding costs have increased.

The bank is set to present its new business strategy on October 27 when it announces its third quarter results.

Ratings agency Moody’s Investors Service expects Credit Suisse’s losses to rise to $3 billion by the end of the year, a lead analyst at the bank’s Moody’s told Reuters on Thursday. read more

The bank also said it plans to sell one of Zurich’s most popular hotels, the Savoy Hotel. read more

($1 = 0.9897 Swiss Francs)

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By John Revill and John O’Donnell; Additional reporting by Amanda Cooper in London; Editing by Jason Neely and Mark Potter

Our Standards: Thomson Reuters Trust Principles.

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