Credit Suisse has launched a SFr4bn ($4bn) share issue and said it will abandon plans to list its Swiss division in an attempt to draw a line under capital fears that have dogged the bank since chief executive Tidjane Thiam took over two years ago.
Investors expected the bank’s quarterly earnings on Wednesday to feature only limited news on its much-anticipated capital plans since it is not on the agenda for the shareholders meeting on Friday.
But in its results announcement, Credit Suisse detailed plans for an extraordinary general meeting on May 18 so shareholders can vote on the sale of SFr4bn of new stock to existing investors at an implied discount of 29 per cent to Tuesday’s closing price.
The SFr4bn is at the higher end of the SFr2-SF4bn capital gap the bank identified in February when it said it was considering abandoning the Swiss listing, which was designed to plug the capital gap under the bank’s 2015 restructuring plan.
Shares in Credit Suisse edged 0.3 per cent higher in early trading to SFr15.6, extending a rally from a low struck last July to 67 per cent.
It comes less than two years after Credit Suisse raised SFr6.05bn to shore up the bank’s balance sheet and fund a restructuring to create a Swiss and Asia-Pacific focused wealth management group and downsize its investment bank.
Since then, the investment bank restructuring proved more costly than expected, Asian growth forecasts were pared back and the bank’s management clashed with shareholders over pay, culminating in top executives’ recent decision to cut their proposed SFr78m 2016 bonus package by 40 per cent.
“The decisions we have made and are announcing today on capital will allow us to grow our tangible book value per share and accrete capital, enhancing returns to our shareholders,” said Mr Thiam. “Our operating performance combined with the strengthening of our capital base, leaves us well positioned to increase our profitability and generate value for our shareholders and our clients.”
Credit Suisse beat analysts’ expectations for the first quarter by delivering pre-tax profits of SFr670m against the SFr648m expected. The bank’s common equity tier one ratio (CET1) — a key measure of financial strength — rose to 11.7 per cent from 11.5 per cent at the end of December, better than the 11.5 per cent analysts expected.
After the capital raise, which is fully underwritten by Morgan Stanley and Deutsche Bank, Credit Suisse expects a CET1 ratio of 13.4 per cent, which it says will “bring Credit Suisse into line with European peers”. Deutsche Bank achieved a CET1 ratio of 14.1 per cent after its €8bn capital raise in April.
Chirantan Barua, analyst at Bernstein, told clients that the capital raising “should be enough to allay concerns in the near term but doesn’t really give the franchise the flexibility to see it through a downturn or meaningfully compete” in its Global Markets division.
“We feel this raise doesn’t really take capital totally out of the concern zone — just makes it cycle/earnings dependent for the next 12 months,” he said.
Chairman Urs Rohner said that the management board’s proposal to keep the Swiss bank had been “unanimously approved” by Credit Suisse directors.
“We believe that keeping 100 per cent of our valuable Swiss bank, while raising capital through a rights offering with pre-emption rights, is the right course of action and will result in significant value creation for shareholders over time,” he added.
The bank sounded a cautious note on the future outlook, saying that it had continued to see positive inflows of client money right across its wealth management business.
“”We have noted that political uncertainties have weighed somewhat on client volumes in the first few weeks of April,” it said. “The outcome for the quarter will be dependent on political developments that are hard to predict at this stage. We are confident in our medium-term growth prospects. However, due to these uncertainties, we remain cautious in the short term.
Credit Suisse is also proposing to move to an all cash dividend in the future, so that dividends paid in new shares do not dilute investors.
Mr Rohner said Credit Suisse expects that 2017’s cash dividend amount will be “broadly similar, on a per share basis, to recent years”. “Our goal is to increase our payout ratio over time as Group profitability improves,” he added.