As credit market concerns linger, Credit Suisse has announced plans to repurchase $3 billion in debt and sell a historic hotel

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Last Updated on October 7, 2022 by Bitfinsider

Credit Suisse offered to buy back up to 3 billion Swiss francs ($3.03 billion) in debt securities on Friday, as the bank deals with a falling share price and an increase in bets against its debt.

In addition, the Swiss lender confirmed that it is selling its famous Savoy Hotel in Zurich’s financial district.

“The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices,” Credit Suisse said in a statement Friday.

It comes after Credit Suisse’s shares briefly fell to an all-time low earlier this week, and credit default swaps reached a new high, amid market jitters about the company’s future.

After a string of scandals and risk management failures, the embattled lender is embarking on a massive strategic review led by a new CEO, and will provide an update alongside its quarterly earnings on Oct. 27.

The bank’s $5 billion exposure to hedge fund Archegos, which failed in March 2021, was the most costly of the scandals. Credit Suisse has since restructured its management team, suspended share buybacks, and reduced its dividend in order to secure its future.

The bank announced a cash tender offer for eight euro- or sterling-denominated senior debt securities worth up to one billion euros ($980 million), as well as 12 US dollar-denominated securities worth up to $2 billion, on Friday. The debt securities offers will expire on November 3 and November 10, respectively.

Credit Suisse shares were up more than 7% on Friday after the news, but they are still down around 50% year to date.

Despite the fact that rising credit risk among European banks may evoke memories of the 2008 global financial crisis, analysts have emphasized that capital buffers are now significantly higher.

Credit Suisse and Deutsche Bank credit spreads have reached historically wide levels, while those of other major European banks have also increased, according to MSCI, but the slope of credit spread curves has generally steepened rather than inverted.

“An inversion of the curve would reflect investors’ short-term default concerns, which was observed across banks in 2008.” “The curve for Credit Suisse has recently flattened,” MSCI Research Executive Directors Gergely Szalka and Thomas Verbraken noted.

“A standard model based on current CDS pricing predicts a market-implied six-month default probability of approximately 2% for Credit Suisse and 1% for Deutsche Bank, respectively, and a five-year default probability of 23% for Credit Suisse and 17% for Deutsche Bank.”

While elevated, Szalka and Verbraken stated that these market-implied probabilities did not indicate an impending default in the short term, but market concern about the long-term viability of both banks was more visible.

“All of this to say,” they concluded, “market data suggests that a Lehman moment for European banks does not appear likely for the time being.”

According to Johann Scholtz, equity analyst at Morningstar, the debt repurchase was a “positive” signal from Credit Suisse to a wary credit market that it is “not in dire straits” in terms of liquidity.

He also denied that the sale of the Savoy Hotel in Zurich was part of a “dash for liquidity,” implying that the proceeds would be insufficient to address any significant liquidity issues.

“I believe it is safe to say that there will be a significant number of write-downs in the third-quarter results.” “I think they’ll look to ‘kitchen sink,’ because that’s really what the market is looking for,” Scholtz predicted.

“I think the reason for possibly selling off this hotel is that there will be a lot of non-recurring items in all of that, so it might, for what it’s worth, make that position look a little better if they can book a profit on selling the hotel.”


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