Credit Suisse unveiled a string of measures to boost its capital base on Wednesday as it battles to restore investor confidence following damaging criticism from the Swiss central bank.
Credit Suisse said it would issue convertible bonds, sell assets and cut more costs, and that immediate steps would add 8.7 billion Swiss francs ($8.9- billion) to its capital.
“The measures we have announced today should eliminate any of the doubt raised by the Swiss National Bank report,” Credit Suisse chief executive officer Brady Dougan told a conference call.
Mr. Dougan, who had been credited for steering the bank through the financial crisis without the need for a bailout, came under heavy fire after the bank’s shares tumbled last month when the SNB called for urgent action to improve its capital this year.
The SNB welcomed the move. “In an environment that remains particularly challenging for the international banking system, these measures substantially increase the resilience of Credit Suisse Group,” the central bank said in a statement.
Credit Suisse shares, which had hit a 20-year low of 16.35 francs after the SNB admonition, jumped over 5 per cent to 18.10 francs in early trade, the biggest rise by a European blue-chip stock.
“The focus on capital-raising and cost-cutting instead of on profits speaks for itself,” said analysts at Notenstein bank.
“After the SNB’s criticism of Credit Suisse’s capital and the battered trust of investors, the measures should be welcomed by investors.”
Credit Suisse said its immediate steps included issuing 3.8 billion francs in convertible bonds to existing investors such as Qatar and the Olayan Group, as well as new investors like Singapore-based Temasek.
An exchange of 1.7 billion francs of hybrid securities into contingent convertible notes (CoCos) to big investor the Olayan Group originally planned for October 2013 will also be brought forward to this year, the bank said.
In addition to the bonds and CoCos, Credit Suisse is taking steps ranging from selling real estate, asking employees to exchange future cash bonuses into shares, and offloading illiquid private equity investments.
Mr. Dougan also announced an extra 1 billion francs of cost cuts after the bank reached a 2013 target of slashing spending by 2 billion francs early. The additional cuts will come in nearly equal parts from the investment banking and private banking units, but Dougan declined to say how many jobs were involved.
Under the original 2 billion franc cost cut plan, Credit Suisse wanted to shed 3,500 positions. It said total staff numbers were down 1,500 from the end of 2011 to 48,200 at the end of June.
Not everyone was won over, however.
“We are unimpressed by these measures, which cause unnecessary dilution to shareholders ... The capital measures will depress revenues (through asset disposals), negatively affect staff morale (through “voluntary” exchange of cash bonus into equity) and make it impossible to generate a reasonable return,” said Kepler analyst Dirk Becker.
Under pressure to slash its dividend to build capital, Credit Suisse said it was planning for a flat all-share payout of 0.75 Swiss francs per share compared to the choice it gave investors last year to take the payout in shares or cash.
Mr. Dougan said Credit Suisse wants to give shareholders “substantial” payouts after it has bolstered its capital to the key 10 per cent level, which it expects in 2013.
Credit Suisse said the various immediate measures would put its capital ratio at 9.4 per cent by the year end from 7 per cent, according to a Swiss measure which includes new Basel III rules.
The bank announced second-quarter net profit of 788 million francs – bringing forward an earnings report that had been due next week.
Pretax profit at its investment bank slumped to 383 million francs from 998 million the previous quarter. The bank said it took losses on fixed-income inventory positions and described interest rate and foreign exchange trading as “challenging.”
But Mr. Dougan reiterated a medium-term return-on-equity target of more than 15 per cent.
The bank said it won 3.4 billion francs in net new private banking assets, taking into account 3.4 billion in outflows following the merger of boutique subsidiary Clariden Leu, now largely complete. Mr. Dougan said Clariden Leu withdrawals ebbed to a low of 200 million in June, meaning outflows are stabilizing.
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