Credit Suisse agrees to sell large chunk of SPG to Apollo

Bloomberg

Credit Suisse AG agreed to sell a significant part of its securitised products group (SPG) to Apollo Global Management Inc. in a deal that will help cut back a business that soaks up capital.
The transaction, along with the expected sale of other portfolio assets to third-party investors, is expected to reduce SPG’s assets from $75 billion to $20 billion, according to the bank.
Apollo will take on most of the SPG team, Credit Suisse said, while the Swiss bank will also provide financing for a share of the assets being transferred. The expected transactions will release $10 billion of risk-weighted assets, while Apollo will manage the $20 billion of remaining assets under an
expected five-year investment management deal.
Reaching an agreement removes major uncertainty that remained when Credit Suisse announced its strategic revamp last month, as the firms only had the rough framework of a deal and investors feared it could fall apart amid last-minute negotiations. Still, the deal is expected to unlock less than half the capital that SPG currently uses, indicating Credit Suisse is left with some of the riskiest assets.
The SPG sale was a key pillar — along with a $4 billion share offering — of the October 27 overhaul. The bank is seeking to shore up its finances and pay for a sweeping revamp that will involve deep job cuts and carve out of its investment banking unit as it seeks to pare risk.
While Credit Suisse said that the deal would help bolster its CET1 ratio, a key metric of financial strength, the deal still leaves many unanswered questions. The bank said part of the asset reduction would come from the “contemplated sale” of some securities to other unnamed investors, and didn’t give details on the overall CET1 benefit. If Credit Suisse is left with some of the riskiest assets, that could also make it more difficult for the firm to reach its goal of cutting 40% of risk-weighted assets from the overall investment bank over the next few years.
Credit Suisse is seeking to return to profitability and put an end to a string of losses and reputational hits that have rocked the institution over recent years, from a damaging spying scandal to the huge losses caused by the Archegos Capital Management debacle.
The bank had previously said it reached an exclusivity agreement with Apollo and Pacific Investment Management for the acquisition of SPG assets and other related financing businesses.
The securitised products group, led since 2016 by New York-based trader Jay Kim, buys and sells securities backed by pools of mortgages and other assets, such as car loans or credit-card debt.
The division also provides financing to clients who want to buy these products and will “securitize” loans — dicing them into new securities of varying risk and return — on their behalf and sell them to investors for a fee.
The lender was dealt a blow recently when S&P Global Ratings downgraded its long-term rating to just one level above junk status, citing execution risks in the restructuring plan.