Credit Suisse Q3 Earnings Missed Market Expectations Sparking Major In-house Changes
Aa
Share
Summary:
- Credit Suisse will cut their investment bank.
- The company will go to the market to raise capital.
- Shares were trading at or near record lows.
Credit Suisse Q3 Earnings spark major in-house changed
In order to restore investor trust and finance a protracted reconfiguration that will result in the elimination of its investment bank and a 9,000-person reduction in headcount, Credit Suisse Group AG decided to turn to investors for a painful multibillion-dollar capital raise.
The firm's ambitions to raise 4 billion francs ($4.1 billion) through a rights issue and the sale of shares to investors like the Saudi National Bank caused the stock to fall as much as 16%. By splitting up the advice and capital markets divisions and selling the majority of a trading company to a group headed by Apollo Global Management Inc., it virtually dismantled the investment bank.
The actions represent an urgent attempt by Credit Suisse to regain credibility after a string of significant losses and managerial instability destroyed its reputation as one of the most prominent lenders in Europe. Ulrich Koerner, the bank's CEO, and Chairman Axel Lehmann are already being questioned about whether the biggest transformation in the institution's recent history is drastic enough and provides suffering shareholders with enough reward.
“The new Credit Suisse will definitely be profitable from 2024 onwards,” Koerner said in an interview with Bloomberg Television’s Francine Lacqua. “We do not want to overpromise and underdeliver, we want to do it the other way around.”
As investors processed combined expenses connected to the reorganization of around $6.6 billion and the dilution effect of the share sales, the shares dropped 12% at 1:06 PM in Zurich. With a potential ownership of up to 9.9%, the capital increase may make Saudi National Bank, which is supported by the country's major sovereign wealth fund, one of Credit Suisse's largest shareholders.
Given that the shares were trading at or near record lows, bank executives had hoped to avoid raising capital, but after observing the outflow of assets and deposits from rich clients, they ultimately chose to do so in order to strengthen the bank's finances. The bank reported a net loss of 4.03 billion francs for the third quarter and stated that it anticipated a loss for the entire year.
The company announced that it will begin cutting 2,700 positions from its employees in the fourth quarter and that by 2025, it expects to have reduced its employment by around 9,000, to 43,000. By that time, it also wants to cut the cost base by 15%, or 2.5 billion Swiss francs.
According to analysts at Citigroup Inc., Credit Suisse's 2025 goal of a 6% return on tangible equity "appears to lack ambition."
The restructure takes place as a result of third-quarter results that highlighted the difficulties ahead. Wealthy clientele left as the investment bank struggled on. The bank reported a quarterly loss of more than $4 billion, which included an impairment of deferred tax assets associated with the restructuring worth 3.7 billion francs. Through 2024, the transformation will cost an additional 2.9 billion francs.
CS Price Chart
Sources: finance.yahoo.com, bloomberg.com
