Credit Suisse, which has been hurt by scandals for years, wants to raise $4 billion by selling stock, as well as letting go of thousands of employees and spinning off its investment bank, in order to make up for a string of big losses.
The struggling Swiss bank released what its CEO, Axel Lehmann, called a “blueprint for success” after it lost 4 billion Swiss francs in the third quarter of the year and had a string of bad weeks.
Investors were unimpressed with the announcement, and the bank’s stock, which had already fallen to record lows, plunged 7.3 percent in early trading.
Related: Credit Suisse’s 238 million euro settlement deal in a tax case has been approved by a French court.
Customers of Credit Suisse have been withdrawing money at a rate that has caused the bank to fall short of some regulatory standards for liquidity, the bank said on Thursday, highlighting the effect that volatile market swings and a social media uproar have had on its operations.
They also noted that it remained steady throughout.
The turnaround plan includes a variety of components, such as job cuts and a shift toward banking for the wealthy.
By the end of this year, it will have eliminated 2,700 jobs, or 5% of its staff, and by the end of 2025, it will have reduced its employment by around 9,000, to 43,000.
The Swiss bank announced that it also plans to split off its investment bank to form CS First Boston, which will be primarily focused on consulting and capital markets. It also expects to attract outside funds and establish a cooperative with the new Credit Suisse.
The largest lender in the Kingdom, Saudi National Bank, promised to spend up to 1.5 billion francs on Credit Suisse to obtain a 9.9% stake in the company and hinted that it may also invest in the spinoff investment bank.
In addition to announcing the sale of a significant portion of its securitized products business, Credit Suisse said it will establish a capital release unit to close down non-strategic, higher-risk operations.
The restructuring of investment banking, according to analysts at JPMorgan (NYSE:JPM), “remains in question,” and the share sale will also have an impact on the stock, they added.
The reorganisation of the bank is the third attempt in recent years by successive CEOs to turn around the troubled business, with the goal of putting behind it the biggest crisis in its history.
The bank, which was once a representation of Swiss dependability, has had its reputation tarnished by a number of scandals, including an extraordinary domestic conviction involving money laundering for a criminal group.
(https://graphics.reuters.com/CREDITSUISSEGP-REVAMP/lbpggrokepq/chart.png) Credit Suisse veers off course.
To reduce the amount of money it would need to borrow from investors to support its transformation, handle its legacy litigation costs, and keep a cushion for upcoming choppy markets, the bank had been hurrying to raise money and free up capital by selling assets.
After a string of costly and morale-draining missteps that led to a complete management transition, Credit Suisse needs to be revamped.
Credit Suisse is following in the footsteps of its larger Swiss rival, UBS, by shifting its focus away from hazardous investment banking and toward banking for the world’s wealthy.
The world’s central banks produced an abundance of newly generated money to rekindle the economy during the financial crisis, which played a significant role in the UBS turnaround’s success.
In contrast, Credit Suisse is working to refocus its business in a world where there is a war, an energy crisis, skyrocketing inflation, and an economic downturn.
Related: Credit Suisse pays $495 million to settle its legacy case
The collapse of the American investment firm Archegos last year cost the bank $5.5 billion, while the need to freeze $10 billion in supply chain finance funds connected to the bankrupt British financier Greensill also highlighted poor risk management.
This month, when a flurry of wild rumours about its health drove its stock price spiralling to a record low, its growing troubles even put it on the radar of day traders.
$1 is equal to 0.9858 Swiss francs.
