LONDON — Credit Suisse on Wednesday said it would raise around CHF4 billion (£3.1 billion, $US4 billion) by offering new shares to investors. It is halting plans to list part of its Swiss unit on the stock exchange.
Switzerland’s second-largest bank said in a statement on Wednesday that it has “decided not to pursue a partial initial public offering of our Swiss banking subsidiary Credit Suisse (Schweiz) AG, thus retaining full ownership of a historically stable income stream in our home market of Switzerland and avoiding complexity in the business structure and activities of a key division of the Group.”
The move allows the lender to strengthen its capital ratio while maintaining control of a profitable unit. At the same time, Credit Suisse’s share price has recovered from lows hit last year, making the offer of fresh equity more attractive.
“Through the proposed share capital increase, Credit Suisse Group AG intends to strengthen its Common Equity Tier 1 (CET1) capital and gain greater financial flexibility for the implementation of its strategic objectives,” the bank said.
A bank’s capital ratio is a measure of its financial strength and ability to weather losses.
“We expect the capital increase will strengthen our pro forma look-through CET1 ratio to approximately 13.4% and our pro forma look-through tier 1 leverage ratio to approximately 5.1%, based on our end-1Q17 risk-weighted assets and leverage exposures,” Credit Suisse said.
Raising capital to deal with increased global uncertainty and tougher regulations has been part of CEO Tidjane Thiam’s plan since he took over in 2015. He has overhauled the bank’s business model, steering away from the capital-intensive markets business towards providing more services for high-net-worth individuals.
In an interview with Bloomberg News last year, Thiam said: “You cannot see the future, that is a futile activity. What you can do is think through how you’re going to cope with a range of futures and then you define a risk appetite — which is what probably of death are you comfortable with.”
“In life, you should only worry about the bad outcomes. If you raise capital and you’re wrong, it’s OK. If you don’t raise capital and you’re wrong, you die,” he said.
Here’s the chart showing Credit Suisse’s recent share price recovery:
At the end of last year, Credit Suisse was hit with a $US5.3 billion bill to settle a US Department of Justice investigation into the behaviour of its residential mortgages division leading up to the 2008 financial crisis, pushing the lender to a loss for the year.
In the quarter the settlement was announced, Credit Suisse reported a capital ratio of 11.6%, down from 12.5% before the DOJ settlement but higher than the 10.2% ratio when the bank’s new strategy began in October 2015.
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