Former chancellor is the bookmakers' favourite to walk into 10 Downing Street
By Oliver Hirt, John O'Donnell and Noele Illien
ZURICH/FRANKFURT (Reuters) -Credit Suisse is racing to firm up sales of part of its business that could limit the cash it needs from investors, a person with direct knowledge of the matter said, with just days to go before the bank unveils an overhaul.
The embattled Swiss lender wants to draw a line under a string of scandals and legal actions in a shake-up that would likely see it pare back a volatile investment bank in London and New York to focus on banking for the rich in Switzerland.
The restructuring is being closely watched by Swiss regulator Finma, which is in regular contact with the bank, said a second person familiar with the matter, highlighting the sensitivity of the revamp.
But with just days to go before the Oct. 27 announcement, it remains unclear what businesses can be sold and for what price – critical pieces in a jigsaw that will determine how much the bank may have to ask of shareholders.
Analysts have said the company might need as much as 9 billion Swiss francs ($9 billion) as part of a reorganization, some of which may have to come from investors and some from the sale of assets.
Management intends to sell businesses, such as securitised products, from its investment bank, the first person said, adding, however, that negotiations will likely take until the last minute before the revamp is announced.
The bank recently launched a process that could include selling its U.S. asset management arm, another source recently told Reuters, with initial expressions of interest due at the end of this week. However, there was no guarantee of a sale.
On Thursday Credit Suisse also announced plans to sell an 8.6% stake in Allfunds Group, valued at 354 million euros ($346.96 million), via an accelerated bookbuilding offering.
Credit Suisse is also considering spinning off part of its advisory and investment banking business, which could bring in outside investors and be named First Boston, Bloomberg has reported.
If such deals do not materialize or fall short of expectations, Credit Suisse will go for a capital increase, said that person. The bank declined to comment, ahead of its official announcement.
SPECULATION SENT CREDIT SUISSE INTO TAILSPIN
Credit Suisse, one of the largest banks in Europe, is trying to recover from a run of scandals, including losing more than $5 billion from the collapse of investment firm Archegos last year, when it also had to suspend client funds linked to failed financier Greensill.
Earlier this month, in an unusual move, the Swiss National Bank, which oversees the financial stability of systemically important banks in Switzerland, said it was monitoring the situation at Credit Suisse.
That came after unsubstantiated speculation about the bank's future on social media sent its stock into a tailspin. The bank's chairman has said its capital is robust. The stock price has roughly halved in value this year.
The bank had earlier approached investors about a capital raise, sources familiar with the matter have said, indicating that selling assets, such as its Savoy Hotel in Zurich, may not be enough.
Credit Suisse has hired Royal Bank of Canada to help organise a capital increase to underpin its finances and secure funds for restructuring, another person familiar with the matter said.
Morgan Stanley is also working on the capital raise, the first source said.
As well as attracting the scrutiny of Swiss regulators, the episode has also caught the attention of the country's lawmakers.
"I hope they announce the American side of the business will be scaled back – investment banking USA needs to be wound down," said Thomas Matter, a leading parliamentarian from the Swiss People's Party, the country's biggest party in parliament and a member of its governing coalition.
"I am more worried that Credit Suisse will be bought at a bargain price by an American bank," he said.
Ray Soudah, Chairman of Swiss mergers and acquisitions specialist Millenium Associates, said disposals risked making Credit Suisse "an even greater target".
"This will dent the value of the company further because it reduces its income," he said.
Last week, Credit Suisse's chairman, Axel Lehmann, who took over in January, pledged to reform the bank after a "horrible" 2021 in which it lost billions of dollars, the biggest ever loss in its history. Ian Lapey, a manager at Gabelli Global Financial Services Fund, a shareholder in the bank, said it must outline an ambitious plan to keep investors on side such as by reducing the size of its investment bank.
"If the company roles out a plan that essentially makes a couple of minor changes and looks to raise capital, that will be very difficult."
($1 = 1.0203 euros)
(Reporting by Oliver Hirt and Noele Illien in Zurich and John O'Donnell; Additional reporting by Emma-Victoria Farr in Frankfurt, David French in New York and Ross Kerber in Boston; Writing By John O'Donnell; Editing by Diane Craft and Josie Kao)
(Reuters) -European shares rose on Thursday after Liz Truss said she was resigning as the United Kingdom's prime minister, brought down by her economic programme that wrecked havoc on markets. Appointed on Sept. 6, Truss was forced last week to sack her finance minister and closest political ally, Kwasi Kwarteng, and abandon almost all of her economic programme after their plans for vast unfunded tax cuts crashed the pound and British bonds, forcing the Bank of England to intervene. "Truss took on an extra relevance to markets because of the policies that she attempted to implement and the markets' reaction to them," said Steve Sosnick, chief strategist at Interactive Brokers.
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Sterling stayed positive today, trading over $1.12 as investors kept watch on the UK’s fraught political drama. City experts said the uncertainty in Westminster was looking priced in, though further turbulence could push the pound toward the bottom of its recent trading range. The FTSE 100 index closed up 19 points to 6,944 on the day that Liz Truss resigned to become the UK’s shortest serving prime minister.
Investors reined in further their bets of a full percentage-point interest rate increase by the Bank of England next month, after a top official said it remained to be seen whether rates rise as sharply as the market has been expecting. Overnight index swaps put a 15% chance on a 100 basis-point increase on Nov. 3, down from 25% before BoE Deputy Governor Ben Broadbent put a question mark over the market's pricing. Such a big increase in Bank Rate looked a near certainty before Truss was forced to backtrack on her unfunded tax cut plans this month.
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