The Good News and Bad News About the World’s Most Systemic Lender, Credit Suisse

Credit Suisse may have taken an “important step” in its turnaround process, as its unfortunately named chairman, Alex Lehmann, said this week. But it is also suffering a gathering run on deposits and losing clients to its biggest rival. 

For the world’s most troubled too big to fail lender, Credit Suisse, this week was punctuated by a small slice of good news and a shed load of bad. Let’s begin with the good: on Wednesday an overwhelming majority of its shareholders green-lighted the bank’s capital expansion plan, despite the fact it will heavily dilute the value of their own holdings. The first part of the plan, which was supported by 92% of shareholders, grants 462 million new shares to qualified investors including the Saudi National Bank (SNB) via a private placement. From CNBC:

The new share offering will see the SNB take a 9.9% stake, making it the bank’s biggest shareholder.

SNB Chairman Ammar Al-Khudairy told CNBC in late October that the stake in Credit Suisse had been acquired at “floor price” and urged the Swiss lender “not to blink” on its radical restructuring plans. 

The second part of the plan involves Credit Suisse offering 889 million new shares to existing shareholders at a price of 2.52 Swiss francs ($2.67) per share. If it is able to unload all of those shares at that price, it will have completed its 4 billion franc ($4.24 billion) capital expansion, which is the first part of its turnaround plan.

This may give the loss-plagued, scandal-tarnished lender just enough of a financial cushion to overcome what is almost certainly the biggest existential crisis of its 166-year existence. CS’ unfortunately named chairman, Alex Lehmann, said the vote marked “an important step” in the creation of the “new Credit Suisse”.

The SNB has said it will hold its stake in Credit Suisse,, currently worth around $1.5 billion, for at least two years (presuming the bank is still around then). Majority controlled by the House of Saud, the SNB (not to be confused with the Swiss National Bank) has also expressed an interest in participating in future capital measures of Credit Suisse to support the establishment of an independent investment bank in Saudi Arabia.

As NC regular Colonel Smithers posited, the Kingdom may be trying to replicate what UBS did for Singapore, by partnering with local firms, training locals and setting up wealth management systems. But the shareholders of SNB are not quite so thrilled at the prospect of becoming the largest shareholder of the world’s most troubled too-big-to-fail lender. Since disclosing its interest in taking a stake in CS in late October, SNB’s shares have fallen by 17%.

One other relative strong point for CS is that its capitalisation ratio remains at 13.5%, which is well above the requirement of 10%. But that number will fall markedly once CS confirms its entire net loss for this year.

And that is pretty much where the good news ends and the bad news begins…

Read the full article on Naked Capitalism

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