Top Credit Suisse executives spent the weekend reassuring large customers, other banks and investors about the Swiss bank’s liquidity and capital position, in response to concerns raised about its financial strength.
Executives picked up the phones after spreads on the bank’s debt default swaps, which provide protection against a company’s default, rose sharply on Friday, indicating investor concerns over the bank’s financial health.
A bank executive denied recent media reports that the bank had formally approached investors about the possibility of raising more capital. That executive said Credit Suisse was trying to avoid such a move given record low share prices and higher borrowing costs due to credit rating downgrades.
After Credit Suisse shares dropped more than 25% last month to less than 4 Swiss francs, its chief executive, Ulrich Körner, sent a company-wide memo on Friday to try to reassure customers. employees about the bank’s capital position and liquidity.
His move also followed a sharp rise in credit default swaps, an indicator of investor sentiment towards risk, which jumped more than 50 basis points (bp) in the past two weeks to 250 bp on Friday.
In a note on matters to be discussed with clients, sent to Credit Suisse executives on Sunday following rumors about the bank’s financial health on social media, officials were told: “A point of concern for many stakeholders, including media speculation , continues to be our capitalization and financial strength”.
“Our position on this is clear. Credit Suisse has a strong capital and liquidity position and balance sheet. The share price evolution doesn’t change that fact.”
A senior executive at a company contacted by Credit Suisse said his view was that the bank was “the worst big bank in Europe” but that it was not in immediate danger.
He stated that he does not believe it is a crisis. The bank’s share price decline reflects its deep-seated problems and lack of an obvious solution, the executive said.
While the local Swiss bank is highly profitable and the global private bank still has a strong brand, potential investors and buyers are concerned that the investment arm may have hidden high liabilities.
Körner and the bank’s board, chaired by former UBS executive Axel Lehmann, are expected to present a plan on October 27 to renew the deal to address investor concerns, along with third-quarter results.
Deutsche Bank analysts last month estimated the restructuring would leave a 4 billion Swiss francs ($22 billion) hole in Credit Suisse’s capital position.
Sought after, Credit Suisse declined to comment. THE Sheet sought out the Brazilian arm of the white man, who also said he would not comment.
Körner, who previously ran Credit Suisse’s asset management business, was recently named chief executive with a mission to pull the investment bank out of the group and cut costs — steps likely to lead to thousands of job cuts.
The board’s latest plan is to split the investment bank into three and resurrect a “bad bank” for high-risk assets and business units earmarked for divestiture.
“Without a doubt, there will be more noise in the markets and in the press between now and the end of October,” Körner wrote on Friday. “All I can say is that you stay disciplined and stay closer than ever to your customers and colleagues.”
Uncertainty about the bank’s future has already led to a series of executive departures. Jens Welter, who had been co-head of global banking, is the latest high-profile defector, having agreed to join Citigroup.
Translated by Luiz Roberto M. Gonçalves
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