Credit Suisse seeks billions from investors in make-or-break overhaul

ZURICH, Oct 27 (Reuters) – Credit Suisse plans to raise 4 billion Swiss francs ($4 billion) from investors, cut thousands of jobs and shift focus from investment banking to its wealthy clients, as the bank tries to put years of scandal behind it . it.

The Swiss lender on Thursday outlined what chairman Axel Lehmann called a “blueprint for success”[ads1]; after it posted an unexpected loss of 4 billion Swiss francs in the third quarter of the year.

The announcement followed torrid weeks for the bank and fell flat with investors. The stock, which has fallen to record lows in recent weeks, fell about 14 percent in early trading, valuing the embattled bank at about 11 billion francs.

Credit Suisse said clients withdrew money in recent weeks at a pace that saw the lender breach some regulatory requirements for liquidity, underscoring the impact on its business of wild market swings and a social media storm.

The group added that it was stable throughout.

Analysts gave the announcement a lukewarm reception. Vontobel’s Andreas Venditti said the bank was undertaking a “long process to restore credibility”.

“Resolute execution and no further missteps will be key and it will take time for the results to start showing,” he said.

The turnaround plan has many elements, from cutting jobs to refocusing on banking services for the wealthy.

It will cut 2,700 jobs or 5% of the workforce by the end of this year, ultimately reducing the workforce by about 9,000 to around 43,000 by the end of 2025.

The Swiss bank said it also aims to spin off its investment bank to create CS First Boston, focused on advisory work such as mergers and acquisitions and arranging capital markets deals.

The bank envisions selling a stake but keeping about 50% in the new business, a person familiar with the matter said. It is also exploring the possibility of an initial public offering, another source familiar with the matter said.

Saudi National Bank, majority-owned by the government of Saudi Arabia, said it will invest up to 1.5 billion francs in Credit Suisse to take a stake of up to 9.9% and may invest in the investment bank.

The move strengthens Saudi influence in one of Switzerland’s best-known banks. The Olayan Group, one of the largest Saudi family-owned conglomerates, with a multi-billion dollar investment portfolio, also owns a 5% stake in the bank.

The Qatar Investment Authority – which owns around 5% of the Swiss bank – declined to comment on whether it plans to buy any shares.

Credit Suisse said it will create a capital release unit to wind down non-strategic, higher-risk businesses, as it announced plans to sell a large part of its securitized products business to an investor group led by Apollo.

The bank will also liquidate certain trading activities in emerging markets and shares.

The large loss in the third quarter was largely due to write-offs related to the investment banking overhaul, including adjustments for lost tax credits.

JPMorgan analysts said “question marks remain” over the investment banking restructuring, adding that the share sale would also weigh on the stock.

The latest revamp, aimed at overcoming the bank’s worst crisis in its history, is the third attempt in recent years by successive chief executives to turn the group around.

Once a symbol of Swiss reliability, the bank’s reputation has been tarnished by a series of scandals, including an unprecedented prosecution at home involving money laundering for a criminal gang.

The bank had been rushing to raise money and free up capital by selling assets, eager to limit how much money it had to raise from investors to finance its overhaul, deal with its legacy legal costs and retain a cushion for difficult markets ahead.

Credit Suisse must be renewed after a series of costly and morale-shattering blunders that triggered a comprehensive management change.

By refocusing away from risky investment banking to banking for the world’s rich, Credit Suisse is following in the footsteps of its larger Swiss rival, UBS.

The UBS turnaround succeeded in large part because of a flood of newly printed money from the world’s central banks to revive the economy during the financial crisis.

Credit Suisse, on the other hand, is trying to refocus its business in a world facing war, an energy crisis, high inflation and an economic slide.

Last year, the bank took a $5.5 billion loss from the break-up of US investment firm Archegos and had to freeze $10 billion in supply chain finance assets linked to insolvent UK financier Greensill, highlighting risk management failures.

Its mounting problems even put it on the radar of day traders earlier this month, when a frenzy of wild speculation about its health sent its share price to a record low.

($1 = 0.9858 Swiss francs)

Additional reporting by Michael Shields in Zurich and Yousef Saba in Dubai; Author of John O’Donnell; Editing by Edmund Klamann

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