Credit Suisse Prepares for Substantial Capital Raising to Fund Restructuring

Strategic Insights -

Credit Suisse is preparing to launch a substantial capital raising as part of its strategic plan, which will be unveiled by new CEO Tidjane Thiam in two weeks' time. The move comes on the heels of a warning by Deutsche Bank that it may scrap its dividend due to a significant net loss, and highlights the struggles of European investment banks to adapt to the post-crisis world. The Swiss bank's fresh capital is expected to be used to absorb losses triggered by a faster restructuring of the group, as well as to comply with tougher capital requirements from regulators.

Key Takeaways:

  • Credit Suisse is planning a substantial capital raising, with investors expecting the bank to raise more than SFr5bn in new equity, according to a Goldman Sachs poll.
  • The capital raising is intended to fund a faster restructuring of the bank, as well as to meet tougher capital requirements from regulators.
  • Credit Suisse's common equity tier one capital ratio of 10.3% compares unfavorably to UBS's 13.5%, and may pose a challenge for the bank as Swiss authorities increase minimum capital ratios in the coming months.
  • Deutsche Bank's capital ratio of around 11% may also be insufficient to meet regulator demands, and the bank may have to consider reducing its investment banking operations.
  • Tidjane Thiam, Credit Suisse's new CEO, is expected to unveil a new strategic plan that shifts the bank's focus away from volatile investment banking operations and towards private banking and Asian markets.
  • Thiam's plan may involve a significant reduction in the bank's fixed-income businesses and a strengthening of its equities operations.

Statistics:

  • Credit Suisse's common equity tier one capital ratio: 10.3%
  • UBS's common equity tier one capital ratio: 13.5%
  • Deutsche Bank's common equity tier one capital ratio: around 11%
  • Investors expect Credit Suisse to raise more than SFr5bn in new equity, according to a Goldman Sachs poll.
  • Deutsche Bank's net loss in the third quarter: [euro]6.2bn
  • Goodwill write-off at Deutsche Bank's investment bank: [euro]5.8bn

Sources:

  • "Credit Suisse Prepares for Substantial Capital Raising to Fund Restructuring" by Bloomberg.
  • "Deutsche Bank to Cancel Shareholder Dividend" by Bloomberg.
  • Goldman Sachs poll, as cited by Bloomberg.
  • Deutsche Bank's third-quarter results, as reported by Bloomberg.
  • "Tidjane Thiam to Outline Plan to Revamp Credit Suisse" by Bloomberg.