According to Reuters, ZURICH is a hot spot for the financial industry. Credit Suisse, the troubled Swiss bank, announced on Friday that it would buy back up to 3 billion Swiss francs ($3 billion) of debt in an effort to calm investors following a turbulent week.
The Swiss bank’s stock price and bond value have dropped dramatically recently, and this action is an attempt to restore investor trust by reducing its debt. Concern that it may need to seek billions of francs in fresh capital has led to unsubstantiated rumours that its future was in jeopardy on social media.
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Credit Suisse, one of the major banks in Europe, lost about $5 billion due to the bankruptcy of investment firm Archegos in March 2021, when it also had to freeze customer funds tied to failed financier Greensill and had to raise capital, limit share buybacks, cut its dividend, and reform management.
“Enable us to take advantage of market conditions to repurchase debt at favourable prices,” the bank said of the debt buyback. In premarket trading in Switzerland, its stock price was seen rising by 1.5%, suggesting some relief among investors.
According to Vontobel analyst Andreas Venditti, “it’s an opportunistic move to take advantage of market conditions that would be reassuring to certain investors.” For example, “If purchased at a discount, the resulting gain will boost capital by a small amount.”
Executives at the bank spent the weekend assuring major clients, counterparties, and investors of the institution’s liquidity and capital. In addition, CEO Ulrich Koerner reassured employees in a memo that the company has adequate capital and liquidity.
The Swiss National Bank, which is responsible for ensuring the safety and soundness of Switzerland’s most important financial institutions, announced earlier this week that it was keeping a close eye on Credit Suisse. Systemically important financial institutions in Switzerland are those whose collapse would have severe consequences for the country’s economy and banking system.
Credit Suisse announced it was undertaking a cash tender offer for up to $2 billion to repurchase 12 senior debt securities denominated in U.S. dollars and eight senior debt securities denominated in euros or British pounds. The bank is planning to unveil its new business strategy on October 27 alongside the release of its financial results for the third quarter.
According to Reuters, Moody’s Investors Service’s senior analyst on Credit Suisse said on Thursday that the rating agency anticipates Credit Suisse’s losses to grow to $3 billion by year’s end, potentially putting its core capital below the critical 13% level. In order to get back to making money, the bank has been exploring potential assets and company sales.
It has also announced plans to sell the Savoy Hotel, located in the heart of Switzerland’s financial centre, a move that, according to local media, could net the company some 400 million Swiss francs. At present, one dollar can be exchanged for 0.9897 Swiss francs.
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