Credit Suisse is paying down debt to calm investor fears

  • Repurchase up to $3 billion in debt
  • It is seen as an attempt to reassure nervous investors
  • The move comes weeks ahead of a planned overhaul
  • Up to 3% stake in initial trading

ZURICH, Oct 7 (Reuters) – Credit Suisse (CSGN.S) The troubled Swiss bank said on Friday it would buy back 3 billion Swiss francs ($3 billion) in debt, showing strength in an effort to reassure investors after a turbulent week.

The move is an attempt to reduce the bank’s debt and boost confidence after a steep fall in its share price and bonds. Amid concerns that it may need to raise billions of francs in new capital, unsubstantiated rumors that its future is in doubt are circulating on social media.

Credit Suisse, one of Europe’s biggest banks, is undergoing a radical turnaround after losing more than $5 billion since the collapse of investment firm Archigos last year.

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The bank’s executives last weekend reassured large clients and investors of its financial strength, seeking to dispel speculation about its future.

Chief Executive Officer Ulrich Koerner said in a note to employees that it had sufficient capital and liquidity. read more

But his words only fueled rumors about the bank, and a social media firestorm gathered pace, prompting a selloff in its shares.

The bank said the loan withdrawal would “allow it to take advantage of market conditions to buy back the loan at an attractive price”.

Investors were heartbroken. Credit Suisse shares rose as much as 3% in early trade on Friday, while the price of its euro-denominated bonds rose.

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“This is an opportunistic move to take advantage of market conditions that may be reassuring for some investors,” Vontopal analyst Andreas Venditti said. “Buying below par is a profit that increases capital a bit.”

Complicated episode

Earlier this week, in an unusual move, the Swiss National Bank, which oversees the financial stability of Switzerland’s systemically important banks, said it was monitoring the situation at Credit Suisse.

Banks are considered systemically critical if their failure undermines Switzerland’s economy and financial system.

The move is reminiscent of Deutsche Bank’s multibillion-euro bailout in 2016, when it faced a similar crisis and doubts about its future.

Dixit Joshi, a former Deutsche executive, recently joined Credit Suisse as head of finance.

Zuercher Kantonalbank bonds are currently trading at a steep discount, allowing Credit Suisse to lower debt at a lower cost. Analyst Christian Schmidiger also called the move “a signal that Credit Suisse has sufficient liquidity.”

Credit Suisse said it would offer a 1 billion euro cash tender offer for eight euro or pound sterling senior notes and another offer to buy back up to $2 billion of 12 US dollar senior notes.

The developments emerged after sources told Reuters recently that Credit Suisse was encouraging investors for fresh money, approaching them for the fourth time in seven years.

Under a restructuring initiated by chairman Axel Lehman, the bank is shrinking its investment bank to focus even more on its core wealth management business. Essentially, he hopes to close a troubled chapter of the bank and repair its reputation.

In the past three quarters alone, losses have added up to nearly 4 billion Swiss francs. In the face of uncertainty, the bank’s funding costs have increased.

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The bank is set to present its new business strategy on October 27 when it announces its third quarter results.

Ratings agency Moody’s Investors Service expects Credit Suisse’s losses to rise to $3 billion by the end of the year, a lead analyst at the bank’s Moody’s told Reuters on Thursday. read more

The bank also said it plans to sell one of Zurich’s most popular hotels, the Savoy Hotel. read more

($1 = 0.9897 Swiss Francs)

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By John Revill and John O’Donnell; Additional reporting by Amanda Cooper in London; Editing by Mark Potter and Jason Neely

Our Standards: Thomson Reuters Trust Principles.

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