Swiss financial services and global investment banking giant Credit Suisse AG has unveiled plans to sell its iconic Savoy Hotel in Zurich’s financial district. The move has fueled speculation that Credit Suisse may not be as liquid as previously feared, potentially weighing on the bank’s equity position.
As part of the longer-term plan to rebalance its financial position, Credit Suisse said it would buy back its debt portfolio to reduce overall liabilities by a good margin. In a statement shared to announce the move, the bank said:
“The transactions are consistent with our proactive approach to managing our overall liability mix and optimizing interest expense, and allow us to take advantage of market conditions to repurchase debt at attractive prices.”
Over time, Credit Suisse has been in the crosshairs of major scandals. The company has $5 billion in exposure to Archegos, a major hedge fund that collapsed in March of last year. The financial stresses of the time rocked the company and the management of the company, especially the CEO, had to be changed.
The new CEO, Ulrich Koerner, is trying to help the bank get back on its feet, and while he is doing a lot to restructure the company, he admits that it is at a critical juncture.
In the midst of the falling stock price and rising credit default swaps (CDS), the company still maintains the perspective that it has its business covered. As part of the debt buyback measure, Credit Suisse is considering a cash tender offer for eight senior debt securities denominated in euros or pounds sterling, and 12 securities denominated in U.S. dollars. While the first security is worth up to 1 billion euros, the second is worth up to 2 billion euros.
Credit Suisse can’t feed Lehman Brothers for a moment
The global financial ecosystem has evolved through a series of scandals and downturns, one of which was fueled by the investment bank Lehman Brothers, which was responsible for the global financial crisis of 2008.
With the current distressed state of Credit Suisse, as well as other major banks whose CDS have also risen recently, many fear that a Lehman Brothers situation could develop. MSCI, a U.S. financial firm, has allayed those fears, noting that a Lehman Brothers moment is far from on the horizon based on the fact that the slope of credit spread curves has generally steepened, rather than reversed.
“The inversion of the curve would reflect investor concerns about short-term default, which was observed in 2008 at all banks. Credit Suisse is the only major bank for which the curve has recently flattened“, noted MSCI’s executive directors of research, Gergely Szalka and Thomas Verbraken. “All of this is to say that market data suggests that a Lehman moment for European banks does not seem likely at this time.“