Credit Suisse shareholders give the go-ahead for a $4.2 billion capital raise

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The logo of Swiss bank Credit Suisse is seen at its headquarters in Zurich, Switzerland, March 24, 2021.

Arnd Wiegman | Reuters

Credit Switzerland Shareholders on Wednesday approved a 4 billion Swiss franc ($4.2 billion) capital raise aimed at financing the embattled lender’s major strategic overhaul.

Credit Suisse’s capital raising plans are split into two parts. The first, backed by 92% of shareholders, awards shares to new investors, including the Saudi National Bank, through a private placement. The new equity offering will see the SNB take a 9.9% stake in Credit Suisse, making it the bank’s largest shareholder.

SNB chairman Ammar AlKhudairy told TUSEN in late October that the stake in Credit Suisse had been acquired at “rock bottom price” and urged the Swiss lender “not to blink” on its radical restructuring plans.

The second capital increase issues newly registered shares with pre-emptive rights to existing shareholders and was passed with 98% of the vote.

Credit Suisse chairman Axel Lehmann said the vote marked an “important step” in building “the new Credit Suisse”.

“This vote confirms confidence in the strategy we presented in October and we are fully focused on delivering on our strategic priorities to lay the foundations for future profitable growth,” said Lehmann.

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Credit Suisse on Wednesday forecast a 1.5 billion Swiss franc ($1.6 billion) loss for the fourth quarter as it embarks on its second strategic overhaul in less than a year, aimed at simplifying its business model to focus on on its asset management division and the Swiss domestic market.

The restructuring plans include the sale of part of the bank’s securitized product group (SPG) to US investment houses PIMCO and Apollo Global Management, as well as a downsizing of the troubled investment bank through a spin-off of the capital markets and advisory unit. which will be renamed CS First Boston.

The multi-year transformation aims to shift billions of dollars in risk-weighted assets from the persistently underperforming investment bank to the asset management and domestic divisions, and to reduce the group’s cost base by $2.5 billion, or 15%, by 2025.

‘Too big to fail’ but more transparency needed

Vincent Kaufman, CEO of the Ethos Foundation, which represents hundreds of Swiss pension funds that are active shareholders in Credit Suisse, expressed disappointment ahead of Wednesday’s vote that the group is no longer considering a partial IPO of the Swiss domestic bank, which he said would have “sent a stronger message to the market”.

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Despite the share dilution, Kaufman said the Ethos Foundation would support the issuance of new shares to existing shareholders as part of the capital raise, but opposed the private placement to new investors, primarily the SNB.

“The non-preferential capital raise in favor of new investors exceeds our dilution limits set out in our voting guidelines. I have spoken to several of our members and they all agree that the dilution is too high there,” he said.

“We support the portion of the pre-emptive capital increase, still believe that the possible partial IPO of the Swiss division would also have been an opportunity to raise capital without diluting existing shareholders at such a level, so we give no preference for this first part of the non-preferential capital increase.”

At Credit Suisse’s annual general meeting in April, the Ethos Foundation tabled a shareholder resolution on climate strategy, and Kaufman said he was concerned about the direction it would take among the bank’s new major shareholders.

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“Credit Suisse remains one of the largest lenders to the fossil fuel industry, we want the bank to reduce its exposure, so I’m not sure this new shareholder will support such a strategy. I’m a little concerned that our message for a more sustainable bank will dilute under these new shareholders,” he said.

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Wednesday’s meeting was not broadcast, and Kaufman slammed the Credit Suisse board for proposing a capital increase and attracting new outside investors “without regard to existing shareholders” or inviting them to the meeting.

He also raised questions about “conflicts of interest” between board members, with board member Blythe Masters also serving as an advisor to Apollo Global Management, which is buying a portion of Credit Suisse’s SPG, and board member Michael Klein who is leading the new dealmaking and advisory unit, CS First Boston. Klein will step down from the board to launch the new company.

“If you want to restore confidence you have to come clean and that’s why we’re still not convinced. Again, a stronger message with an IPO of the Swiss domestic bank would have at least reassured the pension funds we advise.” he said .

However, Kaufman stressed that he was not concerned about Credit Suisse’s long-term viability.

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