From Swiss bank loan to debt securities offers, Credit Suisse's plan to infuse liquidity
3 min read 16 Mar 2023, 06:41 PM ISTThis additional support from SNB is likely to support Credit Suisse’s core businesses and clients as the company takes the necessary steps to create a simpler and more focused bank built around client needs.
PremiumEmbattled Swiss bank Credit Suisse gained some market confidence on Thursday after it took decisive action to pre-emptively strengthen its liquidity problems. Investors saw it as a lifeline and started to once again park their money in Credit Suisse which corrected drastically earlier this week. The Switzerland-based financial service provider's rescue plan is a mixture of loans from the Swiss National Bank and public tender offers of debt securities.
In a statement on Thursday, Credit Suisse said it is exercising its option to borrow from the Swiss National Bank (SNB) up to CHF 50 billion under a Covered Loan Facility as well as a short-term liquidity facility, which are fully collateralized by high-quality assets.
Also, the Swiss bank also announced offers by Credit Suisse International to repurchase certain OpCo senior debt securities for cash of up to approximately CHF 3 billion.
The company unveiled its intention to access the SNB’s Covered Loan Facility as well as a short-term liquidity facility of up to approximately CHF 50 billion in aggregate.
This additional support from SNB is likely to support Credit Suisse’s core businesses and clients as the company takes the necessary steps to create a simpler and more focused bank built around client needs.
Further, Credit Suisse said, it is making a cash tender offer in relation to ten US dollar-denominated senior debt securities for an aggregate consideration of up to $ 2.5 billion.
While the company also announced a separate cash tender offer in relation to four Euro-denominated senior debt securities for an aggregate consideration of up to EUR 500 million.
Both tender offers are subject to various conditions as set out in the respective tender offer memoranda.
The public tender offers will expire on March 22, 2023.
These tender offers are consistent with Credit Suisse's proactive approach to managing its overall liability composition and optimizing interest expense and allow the company to take advantage of current trading levels to repurchase debt at attractive prices, it said.
CEO Ulrich Koerner said: “These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders. We thank the SNB and FINMA as we execute our strategic transformation. My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs."
Credit Suisse is among the global systemically important banks. By end of 2022, the company had a CET1 ratio of 14.1% and an average liquidity coverage ratio1 (LCR) of 144%. Its liquidity ratio has improved to approximately 150% as of March 14, 2023.
It said, the use of the Covered Loan Facility of CHF 39 billion will further strengthen the LCR with immediate effect.
According to the statement, Credit Suisse is conservatively positioned against interest rate risks. The volume of duration fixed income securities is not material compared to the overall HQLA (high-quality liquid assets) portfolio and, in addition, is fully hedged for moves in interest rates.
Moreover, the loan book is highly collateralized at almost 90%, with more than 60% in Switzerland and an average provision for a credit loss ratio of 8 bps across Wealth Management and the Swiss Bank.
In line with the Group’s strategy announcement on October 27, 2022, Credit Suisse has made significant progress toward this transformation and is on an accelerated schedule to build the foundation for the new Credit Suisse.
The company's strategy includes decisive actions to radically restructure the Investment Bank, including the substantial exit from the Securitized Products Group where the bank has already achieved more than 70% of the targeted asset reduction.
The Swiss bank has also accelerated its cost transformation and is well on track to deliver CHF ~2.5 billion of cost base reductions by 2025, including CHF ~1.2 billion in 2023.
Credit Suisse's share price traded over 21% to 2.06 CHF at the time of writing. The stock has gained by more than 32% overall in the day.
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