The second Swiss bank sinks in the stock market after facing a hole of about 9,000 million. Is it the European Lehman Brothers?
Before the financial crisis, Credit Suisse shares were trading at 82 Swiss francs. In the middle of last January, just before inflation ran rampant and global macroeconomic forecasts faded, they were close to 10 francs. Today, with the rumors that the hole in the great Swiss banking institution is greater than it had recognized, the entity’s titles are moving at 4.4 euros , although they have fallen to their historical minimum, bordering on 3, 5 francs. What is the reason for this collapse?From the fiasco of the British Greensill, which was dedicated to lending money to companies so that they could pay their suppliers and reconverted the debts into financial securities that it resold to investors, to the collapse of the investment fund Archegos, which led it to provision 4,400 millions of francs after being unable to cover the investments Credit Suisse had made and declaring bankruptcy, the Swiss banking institution has stumbled after stumble until it became a time bomb capable of exploding with any false move.
Added to this are millionaire fines for bribery and fraud in a corruption scandal in Mozambique , for corporate espionage in 2019 and for collaborating in the money laundering of Bulgarian drug traffickers. A resume that conveys anything but confidence.
The proverbial precision that the white cross mark has earned has Credit Suisse its black sheep. The second Swiss banking entity faces a hole of up to 8,000 million Swiss francs (8,000 million dollars and a similar figure in euros given the almost total parity between all these currencies) in 2024, according to Goldman Sachs.
Faced with this mess, the North American financial entity advised in a report published this week a “deep restructuring” with which it is possible to obtain at least a financial capacity of 4,000 million francs “given the need to restructure investment banking operations in a time of minimal capital generation. Goldman Sachs considers that, in this situation, “it would be prudent to carry out a capital increase to face both the cyclical and structural challenges that lie ahead.”
Rating agency Moody’s forecast Credit Suisse’s losses to rise to 3 billion francs by the end of the year , which could push its capital below the critical 13%. Credit Suisse is already evaluating strong cuts, including divestments of its business or the sale of its manager, in which Pimco Sixth Street and Centerbridge Partners could be interested, according to the Bloomberg agency.
To build muscle and recover the damaged confidence of the markets and customers, something crucial in a business where security is everything, the Swiss entity has announced a plan to repurchase senior debt securities for some 3,000 million Swiss francs.
Cuts and sale of the Savoy hotel
The new CEO, Ulrich Körner, who was released at the beginning of August, must present his strategic plan on October 27 . Credit Suisse announced the appointment of Körner after recording losses of 1,866 million francs in the first half of 2022 and announcing a program to reduce its costs below 15,500 million francs in the medium term.
To this plan will also contribute the new financial director, Dixit Joshi, the former treasurer of Deutsche Bank. The movement has its genesis in the crisis that Deutsche Bank experienced due to the doubts of the markets in its restructuring plans, a situation that was managed to be redirected in 2017.
The new restructuring will most likely include asset sales or exits from the market in all units, and is expected to significantly reduce the investment bank’s losses to send a clear enough message to drive away the ghosts that the Swiss institution it could become the European Lehman Brothers , capable of breaking the bank for much of the Old Continent. To begin with, the entity is looking for a buyer for its famous Savoy Hotel , in the heart of Zurich’s financial district, for around 400 million.
Within the divestment plan, Credit Suisse is evaluating selling its stake in the fund management technology company Allfunds to obtain liquidity, according to what “Five Days” advanced this week.