Credit Suisse goes CoCo to placate critics
Swiss bank Credit Suisse has moved to bolster its capital base following demands from the Swiss National Bank (SNB) last month with a host of measures including issuing contingent convertible bonds (CoCo), selling assets and cutting more costs.
Immediate steps will add SFr8.7 billion ($8.9 billion) to the bank’s capital, including a 3.8 billion CoCo issue to existing investors such as Qatar, the Olayan Group and Singapore-based Temasek.
It will also exchange 1.7 billion of hybrid securities into notes which count towards Tier 1 capital.
“The measures we have announced today should eliminate any of the doubt raised by the Swiss National Bank report,” Credit Suisse Chief Executive Brady Dougan told a conference call on Wednesday.
The SNB’s annual financial stability report, issued on June 14, fired several warning shots over the bows of banks, both large and small, as storm clouds gather again over the European economy.
It reckoned Swiss banks were inadequately prepared to weather worsening economic conditions in Europe or a domestic real estate market shock.
Dougan came under heavy fire after Credit Suisse shares tumbled when the SNB called on the bank to act to improve its capital this year.
In a statement on Wednesday, the SNB welcomed the capital measures announced by Credit Suisse.
"These measures lead to a rapid and significant increase of the loss absorbing capital of Credit Suisse Group," the SNB said. "In an environment that remains particularly challenging for the international banking system, these measures substantially increase the resilience of Credit Suisse Group."
In addition to the CoCos, Credit Suisse is taking steps ranging from selling real estate, asking employees to exchange future cash bonuses into shares at the same price as the CoCos, and offloading illiquid private equity investments.
The bank also lifted a cost-cutting target to SFr3 billion, after cutting SFr2 billion in the first two quarters of this year.
Credit Suisse said the various immediate measures would put its capital ratio at 9.4 per cent by the year end, from seven per cent.
It announced second-quarter net profit of SFr788 million, bringing forward an earnings report that had been due next week.
The SNB report recommended that the two big banks, UBS and particularly Credit Suisse, should speed up the process of cutting risk and build up more secure capital buffers.
Credit Suisse was singled out for criticism for dragging its feet over new rules designed to cushion it against future financial shocks.
“The capitalisation of both big banks – in particular Credit Suisse – is below average in international comparison,” the report read. “Their loss absorbing capital is still below the level needed to ensure sufficient resilience, given the risks in the environment.”
Following the bank’s announcement, Credit Suisse shares opened trading on Wednesday up 4.7 per cent at SFr17.95.
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