Credit Suisse, countdown to the restructuring

Credit Suisse’s restructuring work is progressing at a great pace. The latest evolution in chronological order is today. Christian Meissner, Vice Chairman and Co-Head of Investment Banking Advisory, Wealth Management, already with a past of rank at Lehman Brothers as Co-CEO of the European side, will leave the group. Decision that comes after the criticisms on the management of the unit that have been chasing each other in recent months, and ten days after the reorganization of the second Swiss bank. Meanwhile, two new roof tiles that Ulrich Körner will present to the market on October 27th. First, a $ 495 million plea deal in the US over a dispute over Residential Mortgage-Backed Securities (RMBs). Second, the attempt to sell part of Credit Suisse’s Swiss assets, with the ultimate aim of raising approximately € 6.8 billion, as reported by sources close to the dossier.

The race of the Paradeplatz credit institution towards restructuring and eventual recapitalization, considered a given by an increasing number of financial operators, is long. And the path is full of unknowns. Market, given the extreme volatility experienced in recent months. Monetary policy, given that the viaticum of central banks in contrasting higher-than-expected prices is full of independent obstacles. And managerial balances considering that, should the Swiss national bank (Snb), the national bank of the Swiss Federation, intervene to support financial stability in the face of a sudden liquidity crisis, there could be considerable repercussions.

For now, as internal sources of the credit institution explain, “everything is under control and we are proceeding towards 27 October with clarity, transparency and precision”. An example for all, that of today. Meissner’s farewell does not come suddenly, but from afar. Same goes for the plea bargain in the US.

There are three open fronts. First, Meissner. His passing is not new. Since July, he has de facto left the group, after being hired as head of the Investment banking unit in October 2020, after ten years at Goldman Sachs, and several senior experiences in Lehman, Nomura and Bank of America-Merrill Lynch. An investment banker by profession, rather than a trader, Meissner found himself in an environment not very similar to him, as people close to the file say. Hence the decision to end the relationship earlier than expected.

According to rumors, they see Meissner’s farewell as the prelude to the total disposal of less strategic activities. Among the hypotheses being examined by Körner and his new team, there is the divestment of various investment banking activities, including advisory, dealmaking and underwriting. The interest of Pimco, Centerbridge, as well as of Apollo and Mizuho, ​​is high. Finding an agreement, legal sources close to the file say, “will not be difficult”.

In this context, the second chapter. Credit Suisse, as reported by the Financial Times, is looking to sell its Swiss counterpart’s assets. The units of Swiss Universal Bank that are being considered for a potential sale include a stake in the Six group, which operates the Zurich Stock Exchange. But not only. In between is the 8.6% stake in Allfunds, a listed Iberian investment company.

And also two specialized Swiss banks, Pfandbriefbank and Bank-Now, plus Swisscard, a joint venture with American Express. In addition to this, the rationalization also provides for the sale of part of the group’s real estate assets. For sale are the Savoy Hotel on Paradeplatz in Zurich, just to the left of the bank headquarters, and the Credit Suisse campus in the Swiss city. Negotiations are ongoing.

The third open front is that of sanctions. “We believe in transparency and collaboration with the authorities,” they explain from Credit Suisse. Clear response after the $ 495 million plea deal as part of a settlement with the United States for a dispute over years and related to mortgage-backed securities, an investment instrument that played a central role in the 2007 financial crisis, which resulted in the pyrotechnic collapse of the fourth US bank, Lehman Brothers, in September 2008.

For its side, Credit Suisse said as part of the investigation, that some of the transactions were prior to 2008. The New Jersey Attorney General, who announced the deal on Monday, filed a lawsuit in 2013 for damages of more than 3 billions of dollars, citing the involvement of the bank now led by Körner. “This agreement in principle holds Credit Suisse responsible for the loss of billions of dollars that has contributed to the nation’s crisis,” said First Assistant Attorney General Lyndsay Ruotolo.

It took more than a decade of investigations and lawsuits to achieve this historic result, but we have never wavered in our determination to get to this point. “The compensation Credit Suisse” agreed to pay reflects the extent of the damage it has inflicted on the public and underscores New Jersey’s commitment to vigorously prosecute cases, regardless of the challenges, to protect the financial interests of the investing public. “

Credit Suisse said the deal allows the bank to “resolve the one outstanding mortgage-backed securities issue involving regulatory claims,” ​​the largest it has ever dealt with and one of the largest in the context of the subprime crisis.

The race towards October 27, therefore, continues. And according to the last five days of trading, the stock has not been affected by the tribulations. Plus 2.72%, at 4.49 Swiss francs, for the Credit Suisse stock in the mid-afternoon of Monday, October 17, 2022. Ten days after Körner’s plan, the confidence is still there. However, Thomas Jordan’s Snb, which continues to monitor the Credit Suisse situation closely, has cast a shadow over Swiss financial stability. The Swiss National Bank has started drawing on a dollar liquidity swap line it has with the Federal Reserve, with which Swiss banks can borrow the US currency in the short term through the Snb.

Well, according to the data of the monetary institution, on 5 October 3.1 billion dollars were made available, on behalf of nine entities, while on 12 October the swap was conducted on behalf of 15 institutions and an equivalent value of 6, 27 billion dollars. In both situations, these were weekly swaps, but they represented a generalized stress signal with little precedent in recent history. Should there be any more around October 27, a crucial date for Credit Suisse, it is possible that the situation – on a systemic basis – is worse than it is anticipating.

Financial sources close to the dossier talking about at least 5.2 billion euros of hole, with the consequent search for fresh capital for about 1.65 billion. Total: just over € 6.8 billion to be found in ten days. The Snb monitors the markets as well. And management hopes to provide adequate responses to both.

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