Credit Suisse Group AG tried to allay fears about her health over the weekend in a memo to employees and in a round of phone calls with investors and clients, according to people familiar with the matter.
Credit Suisse shares are down 9% early Monday and are down almost 30% over the past month. Spreads on its credit default swaps, a form of insurance against default, widened to their highest levels for the year on Friday. Deteriorating market conditions suggest that Credit Suisse may struggle to raise new shares to fund a proposed restructuring and that its funding costs could rise sharply.
There has been no formal approach to shareholders about the issuance of new shares, people familiar with the matter said.
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Credit Suisse said in late July it would transform its investment bank and exit some other businesses to become a leaner, less risky institution, following financial disasters that included a $5.1 billion loss at the hands of client Archegos last year Capital Management owned.
The Swiss bank has a large domestic business serving all types of clients and is globally competitive in wealth management, investment banking and asset management. The stock has traded below book value, a metric often followed by investors, for years as a number of management teams struggled to contain troubles within the bank.
In a memo to employees on Friday, Chief Executive Ulrich Körner told employees the bank is at a critical moment before presenting a strategy update with plans for the investment bank on Oct. 27. He said one should not confuse stock performance with its capital strength and liquidity.
The memo seemed to spark new concerns, sparking an online frenzy on Twitter and Reddit investment discussion boards on Saturday and Sunday.
In talking points updated for its bankers and client advisors on Sunday, Credit Suisse said it has a capital buffer of nearly $100 billion and remains at a 13% to 14% ratio for its highest quality for the rest of the year equity expected.
According to points viewed by The Wall Street Journal, Credit Suisse’s high-quality cash and cash equivalents were approximately $238 billion at the end of June. Nothing significant has changed since then, said a person familiar with the matter. Credit Suisse’s leveraged exposure was around $873 billion at the end of June, according to its second-quarter financial report.
Some of investor concerns about the health of Credit Suisse have centered on its leveraged finance portfolios, which the bank said totaled $5.9 billion as of June 30. It was among the top lenders in the leveraged buyout of Citrix Systems Inc., a deal that left a consortium of loss-making banks.
Another focus is the group of securitized products with approximately $75 billion gross exposure to mortgage debt and asset finance. In July, Credit Suisse said it could reduce capital to fund the group with an outside investor but has yet to sign a deal.
In his Friday memo, Mr. Körner compared Credit Suisse to a rising phoenix that will be sustainable over the long term. The bank was founded in 1856 by entrepreneur-financier Alfred Escher.
The bank is Switzerland’s second largest bank by assets, behind UBS Group AG, which faced its own existential crisis during the 2008 financial crisis and required a government bailout followed by a major restructuring. UBS has since emerged as the stronger of the two.
Write to Margot Patrick at [email protected]
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