Credit Suisse (CSGN.CH) has announced that it will buy about 3 billion Swiss francs worth of debt for cash. The bank's decision has a strategic dimension but also in a marketing sense. Presumably, management in this way wants to show financial strength and at the same time improve its tarnished image. Shares are up nearly 5% and already cost CHF 4.4, bouncing nearly 30% from Monday's lows:
- The buyback offer includes debt securities in sterling and euros (about CHF 980 million) and the US dollar (about CHF 2 billion);
- Credit Suisse will buy the bonds at very low prices (as low as 96 cents per EUR, for 750 million bonds and variable interest rates);
- Ratings agency S&P Global indicated yesterday that it maintains a low long-term rating for Credit Suisse (BBB) amid continued uncertainty surrounding the upcoming strategic review (end of October) and the operating model for continued operations.
The decision to buy back bonds appears to be one of the ways the bank wants to navigate through the difficult situation and lower the widening CDS spread which may allow it to possibly continue raising capital in the bond market:
- Deutsche Bank made a similar debt-buying offer, worth $5.4 billion, in 2016
- This summer, Credit Suisse raised additional capital through risky so-called additional bonds. These bonds are currently trading at a loss of 10 cents below value;
- The bank announced yesterday an offer to sell the prestigious Savoy Hotel, in the center of Zurich, which it owns. The building is valued at about $400 million;
- According to Bloomberg, the bank is likely to make further asset sales, scale back its operations and possibly significantly reduce its loss-making investment bank (which is eventually to be spun off into a spin-off). The price investors pay to insure the bank's debt has recently risen to record levels.
The bank's CET1 ratio stood at 13.5% at the end of Q2, well above the international acceptable limit of 8% and also above the 'more restrictive' Swiss standard of 10%. The ratio represents the bank's collateral to the amount of liabilities it can take on. The standard was implemented in Europe, in 2014 to protect the market from a possible repeat of the financial crisis.
Credit Suisse (CSGN.CH) share price, H4 interval. The price has climbed above short-term resistance, i.e. the SMA50 average, and is heading towards the main resistance SMA200, which coincides with the downward trend line. Key to further price action is likely to be the restructuring plan the company is expected to present on October 27, although according to anonymous Bloomberg sources, the industry is pushing Credit Suisse to finally present the plan before the deadline indicated by CEO Ulrich Koerner. Source: xStation5
