Zurich: Credit Suisse Group AG Chief Executive Officer Tidjane Thiam bowed to investor pressure by abandoning the sale of the bank’s biggest profit generator and said it will instead boost capital through a rights offer.
The bank will raise 4 billion francs ($4.03bn) from the share sale after dropping plans for the partial initial public offering of its Swiss Universal Bank, ending weeks of speculation on its funding plan, according to a statement issued yesterday. It also posted first-quarter profit of 596 million francs, beating the 336 million-franc average of seven analyst estimates compiled by Bloomberg.
Credit Suisse is in the second year of a turnaround plan to cut back its securities business while expanding in wealth management and is tapping shareholders a second time after raising 6 billion francs in 2015. Thiam said last month that the bank was considering alternatives to the longstanding IPO plan after a smaller-than-expected hit to buffers from a US legal settlement. “A straight capital increase is less dilutive than the IPO,” Thiam said in an interview with Bloomberg Television yesterday. “Under normal circumstances, that should be it,” he said, referring to the bank’s capital measures. Separately, he said that some shareholders had written to the bank urging it to do a rights issue so everyone could participate equally.
Credit Suisse is the third major European bank to sell shares this year after Deutsche Bank AG and UniCredit SpA raised a combined €21bn. The Swiss bank’s stock has rebounded from a record low in July, making a sale more attractive, while analysts and investors had questioned the merit of selling part of the Swiss unit, the biggest contributor to profit. The bank also said today that it plans to eliminate scrip as a dividend option and move to all-cash payout.
“I welcome the intention of the bank to raise capital,” said Urs Beck, a fund manager at EFG Asset Management, who is holding Credit Suisse and oversees funds with a value of 102 million francs. “Credit Suisse can now look forward and focus on the daily business.”
The rights issues allows the bank to concentrate on growth targets, Morgan Stanley analyst Magdalena Stoklosa wrote in a note to clients.
Credit Suisse rose 2.5 percent to 15.68 Swiss francs at 11:21am in Zurich trading. The stock has gained 13 percent in the past six months as European banks rallied on the prospect that economic growth and rising interest rates could help revive earnings. Bloomberg reported last month that the bank was considering the sale of stock valued at more than 3 billion francs.
“It’s been well-anticipated across the street that they would retain full ownership of their domestic business,” said Jefferies analyst Duncan Farr, adding that there results showed positive trends with respect to revenues, asset flows and cost control. “The business is moving towards a better place."
Thiam is under pressure to show that cuts at the bank’s global markets division are paying off. Surprise writedowns on risky trading positions contributed to a loss in 2016, prompting him to step up efforts to scale back the unit.
At the same time, the bank is focusing on wealth management because of the potential for steadier revenues.
