Credit Suisse Offers $3 Billion Debt Buyback to Shore Up Confidence, Shares Rise 7%

By Jacob J
Updated October 8, 2022 00:07 +08

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Credit Suisse tried to allay fears over liquidity on Friday by announcing it would buy back up to $3 billion of its own debt.

The embattled bank's shares rose following the announcement as the proposed buyback will trim its debt burden. Shares of the second largest Swiss bank traded nearly 7 percent higher at 4.50 Swiss francs.

The Swiss bank, whose liquidity crisis threatened to trigger a Lehman-like crisis in the financial industry, said buyback will allow it to take advantage of market conditions to repurchase debt at attractive prices.

According to Bloomberg, the buyback offer includes euro and pound sterling debt securities worth up to 1 billion euros ($980 million). The other component of the package is an offer for US dollar securities up to $2 billion.

"The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices," Credit Suisse said in a statement.

Earlier this week, the financial industry was spooked over an unprecedented liquidity crisis at Credit Suisse. A series of financial scandals took the Swiss banking giant perilously close to the tipping point. Amid a torrid plunge in market value, there was increasing chatter about impending bankruptcy or a humiliating merger with rival UBS.

The debt buyback move came even as the bank is set to unveil a revival plan on October 27. The bank is expected to almost certainly announce the divestment of its investment banking activities, which was at the core of the current crisis.

The Scandals

The first major shock for Credit Suisse was the bankruptcy of Greensill, a British supply chain company to which the Swiss banking major was heavily exposed. When Greensill filed for bankruptcy in 2021, Credit Suisse lost a whopping $10 billion of its investor money.

The second crisis to hit Credit Suisse later in the same year was the unraveling of Archegos Capital Management, which was promoted by Bill Hwang. While Hwang managed $10 billion, he convinced Credit Suisse and other banks to approve a $30 billion investment.

The crisis unfolded when Archegos engaged in the fire sale of about $20 billion of assets after it defaulted on a margin call by Credit Suisse and others. Shares of Nomura and Credit Suisse plunged, erasing a combined $9 billion in market value on the back of the market chaos following the collapse of Archegos Capital Management. Major investment banks like Deutsche Bank, UBS, Morgan Stanley, Goldman Sachs etc were also hit by the liquidation of Archegos.

Eroding Market Cap

Credit Suisse had a market capitalization of $22.3 billion just a year ago. This has crashed to just $10.4 billion as of now, even as shares plunged 56 percent in one year to $3.98, according to The Street.

CEO's Warning

Credit Suisse CEO Ulrich Korner has sounded the warning bell, saying the company is going through critical moments. "I am conscious that there is lots of uncertainty and speculation both outside and within the company ...While you will appreciate that I am unable to share details of our transformation plans before October 27, I also want to make sure that you hear from me directly during this challenging period. I will therefore be sending a regular update to you all until then," the CEO said.

Is Turnaround Possible?

Though Korner says he is committed to 'reshaping Credit Suisse for a long-term, sustainable future' the market is unsure about the future. The Financial Times reported that senior Credit Suisse executives tried to reassure large clients, counterparties and investors over the weekend about the bank's liquidity.

However, the mood around Credit Suisse is of gloom. Employee morale is down, contract staff have not received their new job offers, and staff departures are happening at a brisk pace, according to The Street. For a company that weathered the financial crisis of 2008, the new crisis has posed acute challenges.

This article was first published on October 7, 2022