The moment of truth for Credit Suisse (CS) has arrived.
The markets, regulators and Credit Suisse employees are eagerly awaiting the restructuring plan, due Thursday, from the second-largest Swiss bank and one of the world's largest banks.
Credit Suisse plans to present a strategy to remove uncertainties and doubts about its health and its future.
Aware of the stakes and expectations, the firm wants to avoid any missteps, especially headlines that would distract investors. It has thus just settled investigations with American and French authorities.
On Oct. 24 Credit Suisse reached an agreement with French authorities to end a criminal investigation alleging that the bank had helped clients avoid paying taxes on undeclared funds. The agreement put an end to the inquiry into suspected money laundering of tax-fraud proceeds. The firm paid 238 million euros ($235 million). The Swiss bank said it admitted no criminal liability.
"The bank is pleased to resolve this matter, which marks another important step in the proactive resolution of litigation and legacy issues," CS said in a news release.
Global Town Hall Is Scheduled
A few days earlier, Credit Suisse had reached an agreement with the New Jersey attorney general related to residential-mortgage-backed securities between 2006 and 2007. It agreed to pay a fine of $495 million.
This is "the largest legacy exposure remaining on Credit Suisse's RMBS docket," Chief Executive Ulrich Körner told employees in an internal memo sent on Oct. 21.
The bank also won a class action over allegations of price fixing in the foreign exchange market.
This autumn cleaning prepares the bank for the announcement expected in three days. In his most recent email to employees, seen by TheStreet, Körner did not elaborate. He simply announced a global town hall on Oct. 27 at 10 a.m. U.S. Eastern.
Körner and Chairman Axel Lehmann promised to answer questions from employees, who are encouraged to submit them in advance.
Credit Suisse has indicated that everything -- including asset sales -- is on the table.
"Credit Suisse Group AG today announced that it is well on track with its comprehensive strategic review, including potential divestitures and asset sales," the firm said on Sept. 26.
The Multibillion-Dollar Question
Markets expect the bank to announce the sale of its securitized-products business. Credit Suisse could also sell other assets. One of the big unknowns is how the firm intends to finance its restructuring and how much it will need for that.
Speculation points to a possible capital increase. It could be a capital hike of around $2 billion, according to reports. According to Bloomberg News, the bank is also considering issuance of convertible bonds or preferred shares.
Many insiders are skeptical about another restructuring plan. The concern is that Credit Suisse previously has implemented significant strategy changes, including the one under former CEO Tidjane Thiam’s leadership in 2015, to focus on private banking and wealth management.
Yet the bank, which emerged relatively unscathed from the 2008 financial crisis, has failed to produce strong results and to convince the markets, with its share price losing more than 80% of its value in a steady decline since 2009.
Credit Suisse offers traditional banking services and products to consumers, mainly in Switzerland. But the establishment is known globally for its investment banking activities -- trading deals such as mergers and acquisitions, bond offerings, IPOs, and more -- and its wealth-management operations.
It is the investment bank that put Credit Suisse in difficulty, even if it was, for a long time, one of the big sources of the bank's revenue and profit.
The investment bank's mistakes have plunged Credit Suisse into a number of scandals in recent years, including the one surrounding the Archegos Capital Management family office in 2021:
Bill Hwang is a South Korean investor based in New York. Tiger Asia, a company he funded in the 2000s, suffered a major setback in 2012 because of insider-trading allegations. Hwang gradually revived Tiger Asia, which became Archegos.
While his company would manage $10 billion, Hwang convinced banks, including Credit Suisse, to lend him $30 billion to invest more. In 2020, he invested heavily in ViacomCBS, shares of which soared.
At the beginning of 2021, Credit Suisse asked Archegos to deposit funds to cover margin debt. Hwang promised to reduce risk. But in March 2021, ViacomCBS shares slumped and the banks asked Archegos to cover the losses, which it was no longer able to do. As a result Hwang's company went bankrupt.
