Credit Suisse to raise $4bn as Swiss IPO plans dropped

Bloomberg

Credit Suisse Group AG Chief Executive Officer Tidjane Thiam is bowing to investor pressure to keep the bank’s biggest profit generator and instead will bolster capital by selling stock in a rights offer.
The bank will raise 4 billion francs ($4.03 billion) in the sale and said it’s abandoning plans for the partial initial public offering of its Swiss Universal Bank, ending weeks of speculation on its fundraising plans. It also posted first-quarter profit of 596 million francs, beating the 336 million-franc average of seven analyst estimates compiled by Bloomberg.
Credit Suisse is in the second year of a turnaround plan to cut back its securities business while expanding in wealth management and is tapping shareholders a second time after raising 6 billion francs in 2015. Thiam said last month that the bank was considering options other than the longstanding plan for the partial Swiss bank IPO after a smaller-than-expected hit to buffers from a U.S. legal settlement related to toxic mortgage securities.
“A straight capital increase is less dilutive than the IPO,” Thiam said in an interview with Bloomberg Television. “Under normal circumstances, that should be it,” he said, referring to the bank’s capital measures. Separately, he told reporters the bank had studied a broad range of options for the capital raising.
Credit Suisse is the third major European bank to sell shares this year after Deutsche Bank AG and UniCredit SpA raised a combined 21 billion euros. The Swiss bank’s stock has rebounded from a record low in July, making a sale more attractive, while analysts and investors had questioned the merit of the IPO of its Swiss unit, which has generated its largest profit. The bank also said today that it plans to move to an all-cash dividend.

Shares Gain
Credit Suisse rose 2.5 percent to 15.68 Swiss francs at 11:21 a.m. in Zurich trading. The stock has gained 13 percent in the past six months as European banks rallied on the prospect that economic growth and rising interest rates could help revive earnings.
Bloomberg reported last month that the bank was considering the sale of stock valued at more than 3 billion francs.
Pretax profit at the international wealth management unit, which doesn’t include Switzerland or the Asia-Pacific region, fell 3 percent to 291 million francs due to lower revenue from transactions and net interest income. Analysts had been expecting the bank to post a profit of 324 million francs. The global markets unit swung to a profit of 317 million francs, driven by credit trading, compared with estimates for a profit of 186 million francs.
Credit Suisse reported 11.7 percent of risk-weighted assets in common equity Tier 1 capital, up from 11.5 percent at the end of 2016. It expects its CET1, a measure of its ability to absorb losses, to be 13.4 percent following the capital increase, which it will propose at an extraordinary shareholder meeting on May 18.
Thiam is under pressure to show that cuts made at the bank’s global markets division are paying off. Surprise writedowns on risky trading positions contributed to a loss in 2016, prompting him to step up efforts to scale back the unit.
At the same time, the bank is focusing on wealth management because of the potential for steadier revenues. He and top executives offered to give up some bonuses this month after shareholder services firms questioned the payouts after two years of losses.
Credit Suisse cut 1,400 jobs in the first quarter as part of plans to trim 5,500 positions this year, Thiam said Wednesday.

Allay Concerns
“The capital raise should be enough to allay concerns in the near term but doesn’t really give the franchise the flexibility to see it through a downturn or meaningfully compete in global markets,” said Chirantan Barua, an analyst at Sanford C Bernstein. “We feel this raise doesn’t really take capital totally out of the concern zone.”
The bank said it remains cautious about its short-term prospects.
“We have noted that political uncertainties have weighed somewhat on client volumes in the first few weeks of April,” it said in the statement. “The outcome for the quarter will be dependent on political developments that are hard to predict at this stage.”