Friday, July 20, 2012

WSJ UPDATE: Credit Suisse Moves to Address Capital Concerns

Credit Suisse Group AG (CS, CSGN.VX) said Wednesday it is shoring up its capital base through the sale of convertible bonds, more divestments and the launch of another cost-savings program, in a move that ends its feud with Switzerland's central bank but raises new questions about the credibility of its management team.


In an unexpected move, Zurich-based Credit Suisse said it would pad its loss-absorbing regulatory capital by 8.7 billion francs ($8.9 billion) in part by selling bonds that convert into shares to a handful of sovereign wealth funds, including existing investors Qatar and Norway, as well as Singapore's Temasek, a new investor.

The bank also is bringing forward the exchange date of a certain class of bonds that will no longer qualify as capital when new rules on capital adequacy come into force in 2019.

The bank also plans to pad its capital base in the second half by selling some asset-management businesses, real estate and other measures, which should add another 6.6 billion francs.

The new measures, announced as Credit Suisse also preannounced better-than-expected second-quarter earnings, are the latest twist in a month-long public dispute between the country's second-largest bank by assets and the Swiss National Bank.

In June, Switzerland's central bank said in its annual financial stability report that Credit Suisse didn't have enough capital, particularly common equity that can be used to absorb losses, to withstand the potential fallout from an escalation in the euro-zone banking crisis, a claim Brady Dougan, the bank's American chief executive, has refuted.

On Wednesday, however, Credit Suisse relented, addressing the central bank's concerns and accelerating its adoption of both Switzerland's strict regulatory requirements and the pending Basel III rules, the benchmark for global banking.

"The central bank report did increase pressure on the common equity question and we wanted to take this question off the table with our clients, with our shareholders," Mr. Dougan told analysts in a conference call.

Still, he termed the debate over his bank's capital as "a bit of a surreal discussion," saying that Credit Suisse had more than fulfilled its regulatory capital requirements even before the latest steps were taken.

Ending the spat with the SNB will take pressure off of Credit Suisse, which saw its shares sink in the wake of the financial stability report.

Despite the bank's repeatedly saying it was among the world's best-capitalized banks, investors wiped away 2 billion Swiss francs ($2.05 billion) in market value after the report was released.

At one point last month, Credit Suisse felt compelled to reassure investors that it would be profitable in the second quarter, even though the bank's performance over that period was never in doubt.

On Wednesday, Credit Suisse reported second-quarter net profit rose 2.6% to 788 million francs from 768 million francs a year earlier.

The bank also launched a new 1 billion francs cost-savings program--to be completed by the end of next year--after completing a 2 billion cost-reduction plan ahead of schedule. Shares jumped 5% to 18 Swiss francs Wednesday.

Analysts praised the moves, saying they eased concerns about the big bank's ability to withstand potential shocks that could be caused by problems at shaky banks in surrounding countries. But some said the bank's about-face raised questions about Credit Suisse's management.

"It now looks as if the SNB was right in their urgent call on CS' capital position," said Rainer Skierka, an analyst at Bank Sarasin & Cie., a Basel-based private bank.

"The announced measures are positive from a solvency point of view but leave some doubts on the credibility of CS management."

Mr. Dougan's initial and public rejection of the central bank's call put Credit Suisse in an awkward position, prompting the about-face now.

"Mr. Dougan would probably better have kept quiet," said Roby Tschopp, head of Actares, an activist Swiss shareholder's group.

Mr. Dougan, who was credited for steering the bank through the worst of the financial crisis, has been under scrutiny since before the tiff with the central bank.

Credit Suisse's shares have lost nearly a fifth of their value this year and are off more than 70% since their recent peak in late 2009.

This has eroded the internal standing of the once-popular Mr. Dougan and drawn criticism from investors.Still, the central bank seemed satisfied with fund raising.

"In an environment that remains particularly challenging for the international banking system, these measures substantially increase the resilience of Credit Suisse Group," the SNB said in a statement.

foxbusiness.com

1 comment:

Anne said...

Does this mean that now is not the best time to file for credit? ed butowsky chapwood