With default swaps near 2009 levels, Credit Suisse reassures investors

With default swaps near 2009 levels, Credit Suisse reassures investors

by Pranali Mehta

Ulrich Koerner, the new CEO of Credit Suisse Group AG, has reportedly asked for less than 100 days from investors to give a fresh rescue plan, which seems like a very long period because of the turbulent markets. As the shares hit a record low last week, the cost to insure the companys bonds against default increased by nearly 15% to levels which has not been seen since 2009.

He informed the staff that the institution had a solid capital foundation as well as liquidity position and promised to provide them with monthly updates until the company presents a new strategic plan on October 27.

After being appointed CEO in late July, Koerner is presently finalizing plans that might include laying off thousands of employees over several years and entail significant changes to its investment bank.

In light of growing rumors about the future of the troubled bank, Koerners memo was the second one to be released on Friday i.e., 30th September. Even after selling some assets, expert analysts predicted that the company may need to raise USD 4 billion in capital to pay for any reorganization, and other growth initiatives.

Since Credit Suisses market value has decreased to about USD 10.1 billion, any share sale would significantly dilute existing shareholders stocks.

For those unaware, the companys 13.5% common equity tier (CET)1 capital ratio as of June 30 fell between the projected range of 13% and 14% for 2022. The annual report of the company in 2021 stated that the minimum international ratio was 8%, however, Swiss authorities demanded a higher level of roughly 10%.

It is worth mentioning that the price of five-year credit default swaps, which is currently 250 basis points and is almost at its highest level on record, has increased from roughly 55 basis points at the beginning of the year.

Notably, the bank is looking into selling its securitized products trading unit, considering selling its Latin American wealth management operations outside of Brazil, and contemplating resurrecting the First Boston brand.

 

Source Credit: https://www.business-standard.com/article/international/credit-suisse-ceo-seeks-to-calm-as-default-swaps-near-2009-level-122100200863_1.html

Pranali Mehta

A chemical engineer by qualification, Pranali Mehta dutifully walked down the slated path and worked in a chemical firm for a year. Her passion for writing however, pushed her into experimenting with the same as a career. With over three years of experience in content writ Read more...