The Swiss bank’s second bank, for now, has let nothing filter through its projects. But his silence adds to the rumours, with Credit Suisse one of the top thirty global banks deemed too big to fail. Concerned, investors multiply the scenarios.
Capital increase or disposal of assets?
The rumors are mainly about a capital increase. According to Andreas Venditti, an analyst at Vontobel, a fundraising is becoming “increasingly likely”, he said in a note, valuing it at 4 billion Swiss francs (4.1 billion euros).
But investors fear significant dilution, with the stock having lost around 70% of its value since the March 2021 bankruptcy of British financial company Greensill, which had marked the beginning of its setbacks. For Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, a capital increase will taste “a little salty” for shareholders, “but they probably don’t have a choice,” he told AFP.
The bank will have to “cut in a hurry”, which implies “probably asking for capital from shareholders” to finance redundancies and restructuring costs, according to the official.
The other option would be to sell assets, such as securitized products that the bank is evaluating. “It’s a difficult choice,” acknowledged David Benamou, chief investment officer at Axiom Alternative Investments, in an interview with AFP, as the bank’s future revenues could suffer.
Last year, these structured products – which make it possible to transform illiquid assets into securities that can be sold in the financial market – were among the activities that limited the drop in income in investment banking.“Market conditions are tight and a forced seller usually cannot get a favorable price”also underlines Mr. Benamou.
The divestments would, however, allow the bank to “buy time until the stock recovers”, observe in a note the Jefferies analysts, allowing it to increase its capital later, in “more acceptable” conditions.
On the stock market, the proliferation of rumors caused its share price to falter, which hit an all-time low of CHF 3,518 on Monday. The bond has since recovered, suggesting markets want to give “Credit Suisse a chance to prepare a solid project,” Swissquote Bank analyst Ipek Ozkardesk told AFP.
On Monday, its market capitalization had melted to 10 billion francs, with the director of investments at Axiom stressing that the bank is becoming “a very attractive target for banks that want to acquire a good franchise in management of fortunes”, one of the strong points of Swiss Credit.
“Banks like BNP Paribas, who have a war chest after selling Bank of the West, should probably ask themselves”, he speculates. The French banking giant sold this subsidiary for 16.3 billion dollars.
According to him, the Swiss bank, however, is able to remain independent and an acquisition by the French banking giant or by another bank would certainly come up against political issues. “For the Swiss, I think Credit Suisse should remain Swiss”nuances Mr. Benamou.
Contacted by the AFP, BNP Paribas declined to comment.
On Monday, discussions raged on Twitter to the point of talk of a “Lehman Brothers moment”, the US bank whose bankruptcy had triggered the 2008 financial crisis.
Analysts quickly brushed aside the rumors, pointing out that the bank has strong capital and that Switzerland would not let this systemically important bank go bankrupt. In 2008, the Confederation flew to the aid of its competitor UBS, setting up a fund with the central bank to liquidate its toxic assets.
For now, however, state intervention remains an “absurd” hypothesis, Judge Benamou, given the money that big banks have to set aside after reforms in the banking sector since the financial crisis.
Its core capital ratio (CET1), which measures the amounts to be set aside to withstand the shock in the event of a crisis, stood at 13.5% at the end of June, very slightly below HSBC Holdings but above BNP Paribas, the biggest banks in Europe.