Credit Suisse is reassuring investors about the bank’s financial strength

Senior Credit Suisse executives spent the weekend reassuring major clients, counterparties and investors about the Swiss bank’s liquidity and capitalization in response to concerns about its financial strength.

Executives answered the phone after spreads on the bank’s credit default swaps, which provide protection against a company default, widened sharply on Friday, signaling investor concerns about the bank’s financial health.

“Teams are actively working with our top clients and counterparties this weekend,” said a Credit Suisse executive involved in the talks. “We’re also getting incoming calls from our top investors with messages of support.”

The executive denied recent press articles that the bank had formally approached investors about a possible capital raise, insisting the bank is trying to avoid such a move with its share price at record lows and higher borrowing costs due to rating downgrades.

After Credit Suisse’s share price fell more than 25 percent to below CHF 4 last month, CEO Ulrich Körner sent a company-wide memo on Friday to try to reassure employees about the bank’s capitalization and liquidity.

His move also followed a sharp rise in credit default swaps, a measure of investor risk appetite, which have risen more than 50 basis points over the past two weeks and hit 250 basis points on Friday.

In a subsequent briefing on issues to discuss with clients, sent to Credit Suisse executives on Sunday following rumors about the bank’s financial health on social media, employees were told: “A point of concern for many stakeholders , including media speculation, continues to be our capitalization and financial strength.

“Our position in this regard is clear. Credit Suisse has a strong capital and liquidity position and balance sheet. The development of the share price does not change that either.”

A top executive at a firm contacted by Credit Suisse said he thought the Swiss bank was “the worst big bank in Europe” but was not in any immediate danger.

“We don’t have meetings on this subject,” he said. “I don’t think it’s a crisis.” The bank’s falling share price reflects its deep woes and the lack of an obvious solution, the executive said.

Ulrich Körner, CEO of Credit Suisse
Ulrich Körner, CEO of Credit Suisse: “There will undoubtedly be more noise in the markets and in the press by the end of October. All I can say to you is stay disciplined and stay as close as ever to your clients and colleagues.’ © CreditSuisse

While the local Swiss bank is highly profitable and the global private bank still has a strong brand, potential investors and buyers worry that the investment banking division may have hidden expensive liabilities.

Körner and the bank’s board of directors, chaired by former UBS board colleague Axel Lehmann, will unveil a plan to restructure the business on October 27 along with third-quarter results to address investor concerns.

Analysts at Deutsche Bank estimated last month that the restructuring would leave a SFr4 billion hole in Credit Suisse’s capital position.

“We’re going to be selling and divesting assets just so we can fund this very strong swing that we’re trying to make toward a stable business,” said the bank’s senior executive, who has been involved in investor calls.

Credit Suisse declined to comment.

Korner, who previously ran Credit Suisse’s wealth management business, was appointed chief executive over the summer with a mandate to downsize the group’s investment bank and cut costs — moves that are likely to result in thousands of job cuts.

The board’s latest plan is to split the investment bank into three parts and revitalize a “bad bank” stop for high-risk assets and businesses held for sale, the Financial Times reported.

“There will undoubtedly be more noise in the markets and in the press by the end of October,” Körner wrote on Friday. “All I can tell you is stay disciplined and stay as close to your customers and colleagues as you’ve ever been.”

Uncertainty about the bank’s future has already led to several executive departures. Jens Welter, who was co-head of global banking, is the latest high-profile defector to agree to join Citigroup.

Additional coverage from Brooke Masters in New York

https://www.ft.com/content/c62bea1f-2929-4473-838d-665dc6c45f83 Credit Suisse is reassuring investors about the bank’s financial strength

Adam Bradshaw

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