Credit Suisse Shareholders Approve $4.2 Billion Capital Raise

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Last Updated on November 23, 2022 by Bitfinsider

On Wednesday, Credit Suisse shareholders authorized a 4 billion Swiss franc ($4.2 billion) capital raising to fund the bank’s ambitious strategic revamp.

The capital-raising plans of Credit Suisse are divided into two segments. The first, which was supported by 92% of shareholders, grants private placement shares to new investors, including the Saudi National Bank. The SNB will acquire a 9.9 percent stake in Credit Suisse through the latest share offering, making it the bank’s largest shareholder.

SNB Chairman Ammar AlKhudairy told Bitfinsider at the end of October that Credit Suisse’s stock was acquired at a “floor price” and urged the Swiss bank to “not waver” in its dramatic restructuring plans.

The second capital increase issues freshly registered shares to current shareholders with pre-emptive rights, and it was approved with 98% of the vote.

Axel Lehmann, chairman of Credit Suisse, stated that the decision constituted a “essential step” in the creation of “the new Credit Suisse.”

Lehmann stated, “This vote confirms trust in the strategy as it was presented in October, and we are fully focused on fulfilling our strategic priorities to set the framework for future profitable growth.”

Wednesday, Credit Suisse estimated a loss of 1.5 billion Swiss francs ($1.6 billion) for the fourth quarter as it launches its second strategy makeover in less than a year to simplify its business model and concentrate on its wealth management division and the Swiss domestic market.

The reorganization plans include the sale of a portion of the bank’s securitized products group (SPG) to U.S. investment firms PIMCO and Apollo Global Management, as well as the spin-off of the bank’s capital markets and consulting section, which will be renamed CS First Boston.

The multiyear restructuring intends to transfer billions of dollars in risk-weighted assets from the persistently underperforming investment bank to the wealth management and domestic divisions by 2025, as well as to cut the group’s cost base by 2.5 billion, or 15%.

Vincent Kaufman, CEO of the Ethos Foundation, which represents hundreds of Swiss pension funds that are active shareholders in Credit Suisse, expressed disappointment before Wednesday’s vote that the group was no longer considering a partial IPO of the Swiss domestic bank, which would have “sent a stronger message to the market,” according to Kaufman.

Kaufman stated that the Ethos Foundation would support the issuance of additional shares to current owners as part of the capital increase, notwithstanding the dilution of shares, but would oppose the private placement for new investors, primarily the SNB.

“The capital increase without pre-emptive rights for new investors exceeds the diluting limits outlined in our voting criteria. “I’ve consulted with numerous of our members, and they all concur that the level of dilution is excessive,” he said.

“We favor the portion of the capital increase with preemptive rights, but we continue to believe that the potential partial IPO of the Swiss division would have also been a way to raise capital without diluting existing shareholders to such an extent, so we do not favor this initial portion of the capital increase without preemptive rights.”

The Ethos Foundation presented a shareholder resolution on climate strategy at Credit Suisse’s annual general meeting in April, and Kaufman expressed concern about the path this would take under the bank’s new significant shareholders.

“Credit Suisse continues to be one of the largest lenders to the fossil fuel industry; nevertheless, we want the bank to limit its involvement, and I’m unsure whether this new shareholder would support such a plan. “I’m little concerned that our message for a more sustainable bank will be watered down among these new owners,” he remarked.

Kaufman criticized the Credit Suisse board for proposing a capital raising and bringing in new external investors “without considering existing shareholders” or asking them to the meeting, which was not aired.

He also raised concerns about “conflict of interest” among board members, as board member Blythe Masters is also a consultant for Apollo Global Management, which is purchasing a portion of Credit Suisse’s SPG, and board member Michael Klein is slated to lead the new dealmaking and advisory unit, CS First Boston. Klein will resign from the board in order to create the new company.

“If you want to reestablish trust, you must do so with integrity, which is why we remain unconvinced. Again, a stronger message with an initial public offering of the Swiss domestic bank would have at least reassured the pension funds that we advise,” he said.

Kaufman emphasized that he was not concerned about Credit Suisse’s long-term health, citing the bank’s robust capital buffers and declining outflows as evidence.

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