The emblem of Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland March 24, 2021.
Arnd Wiegmann | Reuters
Credit Suisse shareholders on Wednesday approved a 4 billion Swiss franc ($4.2 billion) capital raise aimed toward financing the embattled lender’s massive strategic overhaul.
Credit Suisse’s capital raising plans are split into two parts. The primary, which was backed by 92% of shareholders, grants shares to recent investors including the Saudi National Bank via a personal placement. The brand new share offering will see the SNB take a 9.9% stake in Credit Suisse, making it the bank’s largest shareholder.
SNB Chairman Ammar AlKhudairy told CNBC in late October that the stake in Credit Suisse had been acquired at “floor price” and urged the Swiss lender “to not blink” on its radical restructuring plans.
The second capital increase issues newly registered shares with pre-emptive rights to existing shareholders, and passed with 98% of the vote.
Credit Suisse Chairman Axel Lehmann said the vote marked an “vital step” within the constructing of “the brand new Credit Suisse.”
“This vote confirms confidence within the strategy, as we presented it in October, and we’re fully focused on delivering our strategic priorities to put the muse for future profitable growth,” Lehmann said.
Credit Suisse on Wednesday projected a 1.5 billion Swiss franc ($1.6 billion) loss for the fourth quarter because it begins its second strategic overhaul in lower than a yr, aimed toward simplifying its business model to give attention to its wealth management division and Swiss domestic market.
The restructuring plans include the sale of a part of the bank’s securitized products group (SPG) to U.S. investment houses PIMCO and Apollo Global Management, in addition to a downsizing of its struggling investment bank through a spin-off of the capital markets and advisory unit, which will likely be rebranded as CS First Boston.
The multi-year transformation goals to shift billions of dollars of risk-weighted assets from the persistently underperforming investment bank to the wealth management and domestic divisions, and to scale back 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 tons of of Swiss pension funds which can be energetic shareholders in Credit Suisse, voiced disappointment ahead of Wednesday’s vote that the group was not considering a partial IPO of the Swiss domestic bank, which he said would have “sent a stronger message to the market.”
Despite the dilution of shares, Kaufman said the Ethos Foundation would support the issuance of latest shares to existing shareholders as a part of the capital raise, but opposed the private placement for brand new investors, primarily the SNB.
“The capital increase without pre-emptive rights in favor of latest investors exceed our dilution limits set in our voting guidelines. I discussed with several of our members, they usually all agree that the dilution there is simply too high,” he said.
“We do favor the a part of the capital increase with preemptive rights, still believing that the potential partial IPO of the Swiss division would have also been a possibility to lift capital without having to dilute at such a level existing shareholders, so we should not favoring this primary a part of the capital increase without pre-emptive rights.”
At Credit Suisse’s annual general meeting in April, the Ethos Foundation tabled a shareholder resolution on climate strategy, and Kaufman said he was concerned in regards to the direction this might take under the bank’s recent major shareholders.
“Credit Suisse stays certainly one of the biggest lenders to the fossil fuel industry, we would like the bank to scale back its exposure, so I’m undecided this recent shareholder will favor such a method. I’m just a little bit afraid that our message for a more sustainable bank will likely be diluted amongst these recent shareholders,” he said.
Wednesday’s meeting was not broadcast, and Kaufman lambasted the Credit Suisse board for proposing a capital raise and entering in recent external investors “without considering existing shareholders” or inviting them to the meeting.
He also raised questions on “conflict of interest” amongst board members, with board member Blythe Masters also serving as a consultant to Apollo Global Management, which is buying a portion of Credit Suisse’s SPG, and board member Michael Klein slated to move up the brand new dealmaking and advisory unit, CS First Boston. Klein will step down from the board to launch the brand new business.
“If you desire to restore trust, it’s essential do it clean and that is why we’re still not convinced. Again, a stronger message with an IPO of the Swiss domestic bank would have reassured at the very least the pension funds that we’re advising,” he said.
Nevertheless, Kaufman stressed that he was not concerned about Credit Suisse’s long-term viability, categorizing it as “too big to fail” and highlighting the bank’s strong capital buffers and shrinking outflows.