Credit Suisse repays debt to calm investors

ZURICH, October 7 (Reuters) – Credit Suisse Bank (CSGN.S) It will buy back up to 3 billion Swiss francs ($3 billion) of debt, in an effort by the Swiss bank to show its financial strength and reassure investors worried about the lender’s overhaul and how much it will cost.

Speculation about the bank’s future increased on social media last week amid expectations that it may need to raise billions of francs in new capital, sending its shares and some bonds down to new lows.

The buyback reduces the bank’s debt and is an attempt to boost confidence. But central questions about its restructuring — and whether or not it will need new capital to fund it — remain open.

Credit Suisse, one of Europe’s largest banks, is trying to recover from a series of scandals, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to failed financier Greensill.

The bank’s executives spent the past weekend reassuring big clients and investors about its financial strength. CEO Ulrich Koerner also told employees in a note that he had sufficient capital and liquidity. Read more

In an effort to underscore this, the bank said the buyback “will allow us to take advantage of market conditions to buy back debt at attractive rates.”

Investors encouraged. Shares of Credit Suisse gained as much as 3% in early trading Friday, while the prices of its euro-denominated bonds rose.

“It’s an opportunistic move to take advantage of market conditions that may be reassuring for some investors,” said Andreas Vendetti, analyst at Vontobel. “If the purchase is made at a lower than average price, it will lead to a slight increase in capital.”

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Earlier this week, in an unusual move, the Swiss National Bank, which oversees the financial stability of banks of systemic importance in Switzerland, said it was monitoring the situation at Credit Suisse.

Banks are systemically important if their failure is to undermine the Swiss economy and financial system.

Credit Suisse’s move is reminiscent of a buyback of billions of euros of debt by Deutsche Bank in 2016, when it faced a similar crisis and doubts about its future.

Dixit Joshi, a former CEO of Deutsche, recently joined Credit Suisse as Chief Financial Officer.

Zuercher Kantonalbank said the bonds are currently trading at a high discount, which has allowed Credit Suisse to reduce debt at low cost. Analyst Christian Schmidger said the move was also a “signal that Credit Suisse has sufficient liquidity”.

Credit Suisse said it is making a €1 billion cash offer in respect of eight large euro or sterling debt securities and another offer to buy back 12 large US dollar debt securities for $2 billion.

The developments unfolded after sources told Reuters recently that Credit Suisse is looking to investors for fresh money, approaching them for the fourth time in about seven years.

Under the restructuring initiated by Chairman Axel Lehmann, the bank envisions downsizing its investment bank to focus more on its core wealth management business.

Over the past three quarters alone, losses have increased nearly CHF4 billion. Given the skepticism, the bank’s financing costs soared.

The bank is due to present its new business strategy on October 27, when it announces third-quarter results.

Moody’s chief analyst at the bank told Reuters on Thursday that rating agency Moody’s Investors Service expects Credit Suisse’s losses to increase to $3 billion by the end of the year. Read more

The bank also said it was looking to sell the upscale Savoy Hotel, one of Zurich’s most popular hotels. Read more

(dollar = 0.9897 Swiss francs)

Written by John Revell and John O’Donnell; Additional reporting by Amanda Cooper in London. Editing by Jason Neely and Mark Potter

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