Credit Suisse Scraps IPO, Anounces Plans To Raise Capital Of $4bn
Global banking major Credit Suisse has announced that it will recapitalize with a share sale worth $4 billion as a part of its efforts to restructure itself and address concerns regarding its capital levels.
Credit Suisse would become the third European banking group to sell shares this year after Deutsche Bank and UniCredit raised €21 billion cumulatively.
The rights offer has been proposed under Chief Executive Officer Tidjane Thiam’s plan to strengthen its business model and move away from the riskier and capital-intensive activities of trading and banking.
In a statement, Thiam said
This capital raise will allow us to continue to invest in growth at highly attractive returns, to strengthen balance sheet resilience for our clients and other stakeholders, and to afford the costs associated with our ongoing restructuring plans.
Credit Suisse’s first quarter results for 2017 showed a return to profit beating market expectations of a 336 million average loss in Swiss francs. The 596 million francs profit as opposed to losses of 302 million francs a year earlier was driven by trading operations in the fixed income segment and its wealth-management business. Revenue was up 19 percent to reach 5.5 billion francs in the quarter.
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Shares of the company rose about 2 percent in Zurich on news of its strong performance. Chirantan Barua, an analyst at Sanford C Bernstein said that the share sale would fully completely address the challenges faced by the bank, only allowing for it to be earnings dependent for the next 12 months.
Thiam who joined Credit Suisse in 2015 announced a restructuring program in October 2015 included measures to raise $6.3 billion and reduce costs by billions by the end of 2018. The company had indicated at that time that it might need to raise fresh capital to the extent of 11 billion francs. Credit Suisse has also dropped its plans to sell a portion of a highly profitable Swiss unit via an IPO.
Under its restructuring program the bank has so far cut nearly 1500 jobs. The overall plan is to eliminate 5,500 positions this year. The company however continues to battle investor concerns regarding executive pay. The bank saw its second successive annual revenue loss in 2016, but its bonus total climbed up by 6 percent.
In order to address these concerns, Thiam and other top executives have said that they would be voluntarily taking a cut of 40 percent in their bonuses and that directors would not increase their compensation this year.
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