Credit Suisse Group AG sought to arrest a collapse in investor confidence Thursday by opening a 50 billion Swiss franc credit line with the country's central bank and offering to buy back debt, as executives and government officials plot the next steps for the troubled lender.
Shares in Credit Suisse surged as much as 40%, the most on record, after the open in Zurich on Thursday before paring gains. Along with the repurchase of up to three billion francs of dollar- and euro-denominated debt, the bank arranged the collateralized credit line with the Swiss National Bank after a record slump in its share price Wednesday. The bank has not yet needed to use the facility for liquidity, according to a person familiar with the matter.
Meanwhile, Credit Suisse's top shareholder said Thursday "everything is fine" and the bank isn't likely to seek more capital, the day after his comments helped spark the share turmoil the previous day. Worries about Credit Suisse's financial health have roiled global markets over the past 24 hours, alarmed regulators across Europe and the U.S. and prompted some firms to reassess their exposure to the bank.
The government, central bank and the regulator Finma have been in close contact to discuss ways to stabilize Credit Suisse. Ideas floated — beyond the public show of support — include a separation of the bank's Swiss unit and a long-shot orchestrated tie-up with larger Swiss rival UBS Group, people familiar with the matter said, cautioning that it's unclear which, if any, of these steps would actually be executed.
In the meantime, executives are insisting that a strategic revamp announced in October remains the core plan to turn around the bank, and the liquidity backstop and debt repurchases underline the core strength of the bank.
"These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation," Chief Executive Officer Ulrich Koerner said in a statement. "My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs."
Analysts at JPMorgan Chase, however, see a takeover of the bank as the most likely outcome.
Analysts led by Kian Abouhossein laid out three scenarios for Credit Suisse amid a crisis of investor confidence in the bank and say that a takeover — with rival UBS Group a probable option for this — is the most likely.
A deal could be followed by a listing or spinoff of the Swiss Bank part of the lender, worth 10 billion Swiss francs ($10.8 billion), given the market concentration between Credit Suisse and UBS, said the analysts, who have a neutral rating on Credit Suisse.
Debt Repurchase
Credit Suisse announced at least its second debt repurchase in just the past six months as it looks to restore investor confidence. It offered to buy back about $3 billion of its debt in October last year, saying at that time it wanted to "take advantage of market conditions to repurchase debt at attractive prices."
The latest tender offer applies to ten senior debt securities for up to $2.5 billion, as well as four euro-denominated senior debt securities for as much as 500 million euros.
The borrowing comes in the form of a covered loan facility as well as a short-term liquidity facility, which are fully collateralized by high quality assets, the bank said. As of the end of 2022, Credit Suisse had a CET1 ratio of 14.1% and an average liquidity coverage ratio of 144%, which has since improved to approximately 150% as of March 14, it added. The Swiss National Bank declined to comment further on the terms of the facility.
Switzerland's second-largest lender, which traces its roots back to 1856, has been battered over the last several years by a series of blowups, scandals, leadership overhaul and legal issues. The company's 7.3 billion franc loss last year wiped out the previous decade's worth of profits, and the bank's second strategy pivot in as many years has so far failed to win over investors or halt client outflows.
Client Outflows
The lender said in its annual report earlier this week that client outflows continued into March, though Koerner later said on Bloomberg Television that the bank attracted funds after the collapse of Silicon Valley Bank.
The ground for Credit Suisse's sudden lurch had been laid earlier in the week as investors sought to move away from banking risk after turmoil induced by the failure of the U.S. lender. The Swiss bank's stock then plunged to the lowest level on record after the chairman of Saudi National Bank said it wouldn't boost its share of the bank past the current level of just under 10%.
Koerner on Tuesday asked for patience and said the bank's financial position is sound. He pointed to the firm's liquidity coverage ratio, which indicates the bank can handle more than a month's worth of outflows in a period of stress. Chairman Axel Lehmann had said at a conference on Wednesday that government assistance "isn't a topic" and the firm's efforts to return to profitability aren't comparable to the severe liquidity issues hitting smaller lenders in the US.
— With assistance from Ameya Karve, Jan-Henrik Förster, Ishika Mookerjee, Winnie Hsu, Bastian Benrath, Ambereen Choudhury and Jan-Patrick Barnert.
