Credit Suisse shareholders approve a $4.2 billion capital increase

The logo of Swiss bank Credit Suisse is seen at the headquarters in Zurich, Switzerland, March 24, 2021.

Arnd Wiegmann Reuters

CreditSuisse Shareholders on Wednesday approved a 4 billion Swiss francs ($4.2 billion) capital increase aimed at funding the ailing lender’s massive strategic overhaul.

Credit Suisse’s capital raising plans are divided into two parts. The first, backed by 92% of shareholders, grants shares to new investors including the Saudi National Bank via a private placement. The new share offering sees the SNB acquiring a 9.9% stake in Credit Suisse, making it the largest shareholder in the bank.

SNB Chairman Ammar AlKhudairy told CNBC in late October that the stake in Credit Suisse had been acquired at “bottom price” and urged the Swiss lender “not to blink” at its radical restructuring plans.

The second capital increase to issue new registered shares with subscription rights to existing shareholders was accepted with 98% of the votes.

Axel Lehmann, Chairman of the Board of Directors of Credit Suisse, said the vote was an “important step” in building “the new Credit Suisse”.

“This vote confirms confidence in the strategy as we unveiled it in October and we are fully focused on executing our strategic priorities to lay the foundation for future profitable growth,” said Lehmann.

Credit Suisse on Wednesday forecast a loss of 1.5 billion Swiss francs ($1.6 billion) for the fourth quarter as it begins its second strategic overhaul in less than a year aimed at streamlining its business model simplify to focus on their wealth management business and the Swiss domestic market.

The restructuring plans include selling part of the bank’s securitized product group (SPG) to US investment firms PIMCO and Apollo Global Management, and downsizing its ailing investment bank through a spin-off of its capital markets and advisory unit. which will be renamed CS First Boston.

The multi-year transformation aims to shift billions of dollars in risk-weighted assets from the persistently underperforming investment bank to wealth management and domestic divisions, and reduce the group’s cost base by $2.5 billion, or 15%, by 2025.

“Too big to fail”, but more transparency needed

Vincent Kaufman, CEO of the Ethos Foundation, which represents hundreds of Swiss pension funds that are active shareholders in Credit Suisse, expressed disappointment ahead of Wednesday’s vote that the group was no longer considering a partial IPO of Switzerland’s house bank, which he said ” sent a stronger message to the market”.

The CEO of the Swiss pension fund foundation says he is on the restructuring of Credit Suisse

Despite the share dilution, Kaufman said the Ethos Foundation will support the issuance of new shares to existing shareholders as part of the capital increase but opposes the private placement to new investors, primarily the SNB.

“The rights-free capital increase in favor of new investors exceeds our dilution limits set out in our voting guidelines. I’ve spoken to several of our members about this and everyone agrees that the dilution is too high there,” he said.

“We support the right of first refusal portion of the capital increase as we still believe that the potential partial IPO of the Swiss division would have been, and still is, a way to raise capital without having to dilute existing shareholders to that extent therefore not for this first part of the capital increase without subscription rights.”

At Credit Suisse’s annual general meeting in April, the Ethos Foundation presented a shareholder resolution on the climate strategy, and Kaufman said he was concerned about the direction this would take among the bank’s new major shareholders.

ABRDN: Despite the risks, there is real value at Credit Suisse

“Credit Suisse remains one of the largest lenders to the fossil fuel industry. We want the bank to reduce its exposure so I’m not sure if this new shareholder will endorse such a strategy as a more sustainable bank will be diluted under these new shareholders,” he said.

Wednesday’s meeting was not broadcast, and Kaufman berated the Credit Suisse board of directors for proposing a capital increase and adding or inviting new outside investors to the meeting “without considering existing shareholders.”

He also raised questions about “conflicts of interest” among board members, with board member Blythe Masters also acting as an advisor to Apollo Global Management, which is buying part of Credit Suisse’s SPG, and board member Michael Klein to lead the new Dealmaking and Advisory Unit, CS First Boston. Klein will step down from the board to start the new company.

“If you want to restore trust, you have to do it cleanly and that’s why we’re still not convinced. Here, too, a stronger message with an IPO of the Swiss house bank would at least have reassured the pension funds we advise,” he said.

However, Kaufman stressed that he was not concerned about Credit Suisse’s long-term viability, calling it “too big to fail” and highlighting the bank’s strong capital buffers and shrinking outflows.

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