A general view of Credit Suisse’s offices in the Canary Wharf business district on Apr. 6, 2021 in London, England.
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Expectations weren’t high heading into Credit Suisse ‘s first-quarter results, having already issued a profit warning, but the Swiss bank still managed to shock the analysts that follow the banking giant.
The bank announced it was raising $1.9 billion in fresh capital, and said there would be a charge in the second quarter relating to the losses at Archegos Capital Management, after incurring a 4.4 billion franc charge in the first quarter.
Credit Suisse shares dropped 6% in midday Zurich trade and have lost about 30% since the bank first disclosed it would take a loss on Archegos.
Read:Credit Suisse Taps Investors for Cash After Archegos and Greensill Debacles
UBS analysts led by Daniele Brupbacher said the fundraising came earlier than the market expected. “This capital increase probably comes earlier than the market expected even though we regarded CS’ capital situation as tight going into a likely strategy review,” they said.
Andrew Coombs, an analyst at Citi, made a similar comment. “We are surprised by this action and the dilution should be poorly received, but should help to take capital concerns off the table,” said Coombs, who has a buy rating.
Credit Suisse also said it was “reasonably possible” it will have to take a loss over the suspension of $10 billion worth of supply-chain funds tied to fallen Greensill Capital. On a conference call, Credit Suisse Chief Executive Thomas Gottstein said the bank had a strong legal case over 23% of those funds and that it might take years to resolve the matter with both Greensill and its insurers.
The bank announced a $35 billion reduction in the leverage its investment bank business—and within there, the prime services business—will provide. Citi’s Coombs asked bank executives what the revenue impact would be. “I would expect clearly our Prime revenues to fall as a consequence there,” said Chief Financial Officer David Mathers, though he couldn’t quantify the decline. He said the business would be moving more to a “utility” model of serving clients that have multiple connections to the bank, rather than a stand-alone business.
Kian Abouhossein of JPMorgan told the executives that the investment bank business—”even taking out what you could call specific issues such you see now with Archegos”—isn’t making its cost of capital, as he asked whether Credit Suisse needed its investment bank to be as big as it is. Mathers said all the businesses are being reviewed, but that Credit Suisse “pretty much outperformed everybody else in the first quarter.”
