According to two people with knowledge of the situation, Credit Suisse is approaching investors for more funding for the fourth time in about seven years as it tries to completely revamp its investment bank.
The persons claimed the bank began talking to investors about the decision in recent weeks.
They added that the investment bank is considering a number of alternatives, including the most extreme one—a complete exit from the American market.
It is unknown how interested investors are, and the bank, which has struggled with a number of scandals, has amassed about 12 billion francs (about $12.22 billion) in capital since 2015, which is roughly similar to its current market value, and may have a negative impact on interest.
As a result of the news, shares dropped and reached their all-time low, closing down 5.5% at 4.647 francs.
No choices have been made, according to the sources, who also declined to go into detail about how much money the bank planned to raise.
A representative for Credit Suisse (CSGN.S) stated that when they release their third-quarter earnings, as promised, they will provide an update on the status of their thorough strategy assessment. Commenting on any probable consequences before then would be premature.
On October 27, quarterly results are due.
Last year, Credit Suisse suffered losses from the collapse of Archegos, was tarnished by its association with the bankrupt lender Greensill Capital and was chastised by regulators for eavesdropping on its executives. In addition, it was punished for negotiating a bogus loan to Mozambique.
The bank plans to reduce the size of its investment bank as part of a restructuring initiative started by Chairman Axel Lehmann, in order to increase the emphasis on its flagship financial advisory division.
Ulrich Koerner, a restructuring expert, was hired by the bank in July to reduce investment banking and cut expenses by more than $1 billion after it announced its second strategic review in a year.
Losses alone for the last three quarters have reached around 4 billion Swiss francs. The costs of funding for the bank have increased due to uncertainty. Analysts at Deutsche Bank anticipated a capital shortage of at minimum 4 billion francs in August.
Part of this may be covered by selling its mortgage and other loan securitization business, as already mentioned.
According to sources, there is a lot of interest in this company, especially from financial investors, other banks, and insurers. Although profitable, the firm requires a lot of capital. It is valued between $1 billion and $2 billion, according to one analyst.
Additionally, additional smaller firms can be put up for sale.
Avoiding a capital increase, as per what was conveyed by one of the persons who spoke, would probably be challenging. However, the main investors with who the bank is in discussions are placing strict requirements on participating in a capital raise.
Different board of director members has different views on how drastic the drop in financial services should be, which will ultimately determine the strategy.
Certain sectors crucial to the main business with billionaires and millionaires would migrate to other parts of the bank if the bank were to substantially quit U.S. investment banking.
As part of its effort to slash costs, Credit Suisse is also thinking about eliminating roughly 5,000 jobs, or about one out of every ten positions.
With inflationary pressures, there is a lot for everyone involved to consider. Banks like Credit Suisse have to take the necessary precautions and thread carefully so that the other banks could follow suit with cushion-like protection against the interest rate hikes.
