CEO Of Credit Suisse Seeks To Calm Markets Ds default Swaps Approach 2009 Levels

(CTN News) _ The new CEO of Credit Suisse Group AG has asked investors for less than 100 days to come up with a new turnaround strategy. Due to the current market volatility, that seems to be a long time.

The cost of insuring the firm’s bonds against default climbed about 15% last week, reaching levels not seen since 2009.

The bank’s chief executive officer, Ulrich Koerner, informed employees on Friday that the bank has a “strong capital base and liquidity position” and that he will provide a regular update until a new strategic plan is announced on Oct. 27.

Since he was appointed CEO in late July, Koerner has faced market speculation, banker exits and capital concerns as he seeks to set a course for the troubled Swiss bank.

According to Bloomberg, the lender is in the process of finalizing plans that will likely see sweeping changes to its investment bank and the elimination of thousands of jobs.

It was Koerner’s second consecutive Friday missive as speculation over the bank’s future increased.

According to analysts at KBW, the firm may need to raise 4 billion Swiss francs ($4 billion) in capital even after it sells some assets to fund any restructuring or growth efforts.

It is estimated that Credit Suisse’s market capitalization has fallen to around 10 billion Swiss francs ($10.1 billion), thus making any share sale highly dilutive for long-term shareholders.

March 2021 was the last time the market value exceeded 30 billion francs.

At June 30, Credit Suisse’s CET1 capital ratio stood at 13.5%, which was in the middle of the planned range of 13% to 14%.

Swiss authorities require a higher level of about 10%, according to the company’s 2021 annual report.

According to KBW analysts, the current crisis reminds them of six years ago’s crisis of confidence.

A US probe into mortgage-backed securities was causing the German lender to face broad questions about its strategy. Its credit-default swaps increased, its debt rating was downgraded, and some clients pulled out.

With the German firm settling for a lower figure than many feared, raising about 8 billion euros and revamping its strategy, stress eased. It took years for the bank to reverse what it called a “vicious circle.”

There are differences between the two situations. Credit Suisse doesn’t face any one issue on the scale of Deutsche Bank’s $7.2 billion settlement, and its key capital ratio of 13.5% is higher than the 10.8% that the German firm had six years ago.

As a result of the stress Deutsche Bank faced in 2016, the cost of insuring against losses on its debt for one year was higher than that of protecting for five years.

One-year swaps from Credit Suisse are still cheaper than five-year ones.

According to Credit Suisse, it is working on possible asset and business sales as part of its strategic plan.

As Bloomberg reports, the bank is exploring deals to sell its securitized products trading unit, is considering selling Latin American wealth management operations excluding Brazil, and is considering reviving First Boston.

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