- Swiss bank may look to raise over 1 billion CHF
- Share sale or disposal of assets among options
- Rising costs add to structural headwinds
Shares in Swiss banking group Credit Suisse (CSGN:SWX) fell 5% to CHF 6.75 following unconfirmed reports it is looking at options to bolster its capital later this year.
These include a potential sale of the asset management business, or selling shares to major investors. The group could be looking to raise in excess of 1 billion Swiss francs.
The attempt to bolster its capital position would in part be a result of the significant losses incurred last year following poor investments and a number of costly legal cases.
Earlier this month, rating agencies Standard and Poor’s and Fitch both downgraded their debt ratings for the bank.
DEEP-ROOTED PROBLEMS
The recent first-quarter results revealed several structural issues facing the group.
The revenue outlook for both the asset management and investment banking divisions looks increasingly challenging. Revenues are trending lower, and there is little indication that this will improve in the short to medium term.
An additional concern is that costs continue to rise. The chief financial officer increased 2022 cost guidance to CHF 17 billion excluding one-offs with the first quarter results and said the bank had limited cost flexibility this year.
The outlook for capital remains at risk for two reasons.
First, organic capital generation is weak given poor earnings momentum, and second, litigation risks remain. This is a worry given the bank's core tier 1 equity ratio of 13.8% is below its 14% target.
EXPERT VIEW
The bank maintains it is ‘robustly capitalised’ and is ‘currently not considering raising additional equity capital’, although that doesn't mean it isn't considering asset sales.
Commenting on the group’s possible need to improve its capital position, Jefferies analyst Flora Bocahut said ‘The news, if confirmed, points to potentially more pain than we currently expect.
‘This could be either because of lower earnings than expected, or via higher market or operation risk or regulatory headwinds. It could also be that Credit Suisse is considering such plans in case the environment for revenue and costs does not improve as expected in 2023.’
