Credit Suisse stock falls close to the price of the discounted rights offering

Credit Suisse Group’s dry spell brought the stock closer to the price the Swiss lender is proposing to investors in a crucial capital raise, increasing the risk that the underwriters will hold unwanted shares.

The stock fell as much as 5.49 percent to a record low of 2.67 Swiss francs (2.71 euros), just 6 percent above the CHF 2.52 subscription rights price that Credit Suisse was offering to existing investors. The bank had set the price after the strategy presentation in October at a discount of 32 percent to its share value.

Credit Suisse is grappling with its longest-ever streak of share losses as dilution from the capital raise adds to pressures from years of scandal and mismanagement. The bank has warned it will post a loss of up to 1.5 billion Swiss francs in the fourth quarter and has seen massive outflows from its key wealth management business amid a slump in confidence.

The threshold of CHF 2.52 is “the ‘hard underwriting’ price for the consortium of 19 banks,” said the analysts at JPMorgan in a research note. If Credit Suisse shares trade above this level by “the last day of rights trading on December 6, 2022,” then at that point we can assume that the fundraising was most likely successful.

A large number of underwriters makes it easier to find buyers and reduces the risk for the investment banks of holding a large portion of the shares. As part of the lender’s capital raising plans, the Saudi National Bank will invest up to CHF 1.5 billion in the lender, making it a top shareholder.

Credit Suisse CEO Axel Lehmann told a conference in London yesterday that the stock will stabilize after the rights issue closes and that investors should expect volatility until then. The new shares are scheduled to start trading on December 9th.

“I can not predict where the share price will develop,” said Lehmann. By the end of the fundraising process, “we’re going to have a little bit of volatility, but then I think it’ll level off a bit and bottom out, and then we’ll go from there.”

The rights issue, which is fully funded, “was one of the most intensely debated issues, one of the most difficult decisions we had to make,” he said. “But that your share price goes down to about three francs or less, it’s not a real surprise in terms of the dilution required.”

While the rights offering is “very unlikely,” such a scenario would prompt S&P to “evaluate” the impact on the credit ratings it has given Credit Suisse, analyst Anna Lozmann said. She also said that “continued strong outflows of deposits” could be a “trigger for negative rating action”.

Credit Suisse’s restructuring, including job cuts and the spin-off of its investment banking business, has met with skepticism from analysts and investors concerned about the complexity of the restructuring. In the ongoing 13-day routine, Credit Suisse has lost 2.7 billion Swiss francs in market value. Credit Suisse stock falls close to the price of the discounted rights offering

Fry Electronics Team

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