Credit Suisse pays down debt to ease investor fears

  • To redeem up to $3 billion in debt
  • Seen as an attempt to reassure nervous investors
  • The move comes weeks before the scheduled overhaul
  • Share up to 3% in the first exchanges

ZURICH, Oct 7 (Reuters) – Credit Suisse (CSGN.S) will buy up to 3 billion Swiss francs ($3 billion) of debt, the troubled Swiss bank said on Friday, showing strength as it seeks to reassure investors after a tumultuous week.

The move reduces the bank’s debts and is an attempt to bolster confidence after the sharp drop in its stock and bond prices. Unsubstantiated rumors that his future was uncertain circulated on social media, amid fears he needed to raise billions of francs in fresh capital.

One of Europe’s biggest banks, Credit Suisse is embarking on a dramatic U-turn after losing more than $5 billion following the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to bankrupt financier Greensill.

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The bank’s executives spent the past weekend reassuring major clients and investors of its financial strength, seeking to dispel speculation about its future.

CEO Ulrich Koerner also told staff in a memo that he had enough capital and liquidity. Read more

But his words only fueled rumors about the bank, as a social media storm gathered pace, triggering a sale of his shares.

The bank said the debt buyback “would allow us to take advantage of market conditions to buy back debt at attractive prices”.

Investors took heart. Credit Suisse shares gained as much as 3% in early trading on Friday as the price of its euro-denominated bonds rose.

“It’s an opportunistic move to take advantage of market conditions that might reassure some investors,” said Vontobel analyst Andreas Venditti. “If bought below par, it results in a gain that will slightly increase the capital.”

TROUBLE CHAPTER

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

Banks are considered systemically important if their failure harms the Swiss economy and financial system.

The move recalls a multibillion-euro debt buyout by Deutsche Bank in 2016, when it faced a similar crisis and doubts about its future.

Dixit Joshi, a former Deutsche executive, recently joined Credit Suisse as chief financial officer.

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

Credit Suisse has announced that it is making a €1 billion cash tender offer for eight senior debt securities denominated in euros or sterling and another tender offer for 12 senior debt securities denominated in US dollars for a maximum of 2 billion dollars.

The developments came after sources recently told Reuters that Credit Suisse was probing investors for fresh cash, approaching them for the fourth time in about seven years.

As part of a restructuring launched by Chairman Axel Lehmann, the bank plans to reduce its investment banking to focus even more on its flagship wealth management business. Above all, he hopes to close a troubled chapter for the bank and repair its reputation.

In the last three quarters alone, losses amounted to nearly 4 billion Swiss francs. Given the uncertainties, the bank’s funding costs have skyrocketed.

The bank is due to present its new business strategy on October 27, when the third quarter results are announced.

Ratings agency Moody’s Investors Service expects Credit Suisse’s losses to hit $3 billion by the end of the year, Moody’s senior analyst on the bank told Reuters on Thursday. Read more

The bank also said it was considering selling its upscale Savoy Hotel, one of Zurich’s best-known hotels. Read more

($1 = 0.9897 Swiss francs)

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Written by John Revill and John O’Donnell; additional reporting by Amanda Cooper in London; edited by Mark Potter and Jason Neely

Our standards: The Thomson Reuters Trust Principles.

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