Credit Suisse shares plunged, calling selloff plans into question

Autor: Article based upon analysis from Reuters Breakingviews | Link: Credit Suisse selloff throws wrench into revamp
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Monday’s session on the stock market brought a 10% fall in Credit Suisse shares, before recovering slightly to 8%.

Spreads of the bank’s credit default swaps (CDS), which provide investors with protection against financial risks such as default, shot up almost 80 basis points to 322 basis points, according to Refinitiv data cited by Reuters.

The timing couldn`t be worse since the Swiss group`s executives are planning a selloff, in a strategic move to restructure the bank.

It seems like Chair Axel Lehmann failed to reassure clients and investors over the weekend that the bank’s liquidity and capital position are strong.

The price plunge still seems unjustified since less than four months ago Credit Suisse had a comfortable 13.5% common equity Tier 1 capital ratio.

The bank also reported 232 billion Swiss francs of liquid assets – roughly equal to the sum of its short-term borrowings and quickly-accessible customer deposits.

Even if the financial position of the Zurich bank is still solid, the recent developments raise the question of future decision-making in order for the strategic plans to succeed. That would be raising more capital.

The CDS selloff implies higher funding costs. Analysts at Citigroup pegged the increase at around 300 million Swiss francs, equivalent to 5% of 2021 adjusted pre-tax profit.

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More pain for its investment bank could follow since the selloff could also deter trading counterparties.

Also, private-banking clients could pull assets, infecting the core wealth management franchise.

The bank is to provide updates on its strategy review when it releases its Q3 results on Oct.27. But plans to sell the investment bank`s securitization business could raise problems now.

This is a key part of the plan, potentially allowing Lehmann to avoid a punishing capital hike to fund the turnaround.

Yet, getting a good price when markets and Credit Suisse shares are so volatile it’s really hard. The same goes for other assets that could tap for cash.

A capital hike could be the best way to calm the lenders and customers alike.

Credit Suisse may need to raise 4 billion Swiss francs to pull off Lehmann’s restructuring, according to analysts at Deutsche Bank.

That’s equivalent to 40% of the bank’s market value, compared with 30% at the start of September.