Credit score Suisse Provides $3 Billion Debt Buyback After Turmoil

(Bloomberg) — Credit Suisse Group AG aims to buy back debt 3 billion Swiss francs ($3 billion) worth of debt, taking advantage of the slump in market prices while demonstrating financial muscle after a week in which some investors questioned its solidity.

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The offer includes euro and pound sterling debt securities worth up to 1 billion euros ($980 million) and a separate offer for US dollar securities up to $2 billion, the Zurich-based bank said in a statement Friday.

Credit Suisse has been locked in turmoil just weeks away from the announcement of a major strategic review after a series of multi-billion-dollar blowups, with the bank’s shares having lost more than half their value this year. The debt buyback echoes a $5.4 billion offer made by Deutsche Bank AG in 2016 as markets pummeled the German lender.

Credit Suisse shares rose as much as 3.6%, trading at 4.36 Swiss francs at 10:07 a.m in Zurich. The company’s bonds also rose.

The bank is looking to buy the bonds at deeply discounted prices. For example, Credit Suisse will pay less than 96 cents on the euro to buy a 750-million euro floating-rate note that was indicated above face value last Friday, and offer a spread of 350 basis points over German government bonds for a 1.5-billion euro issue trading well below 300 basis points in September.

When the lender raised capital with so-called Additional Tier 1 notes in the summer, the riskiest type of bank debt, it had to pay an almost double-digit coupon in a dollar-denominated transaction. That note is now quoted more than 10 cents below face value.

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The Swiss bank in August appointed Dixit Joshi, a former Deutsche Bank executive, as its chief financial officer to replace David Mathers. Credit Suisse’s overhaul is likely to also include asset sales or market exits across units, and is expected to significantly pare back the loss-making investment bank. Adding urgency to the review, the price investors have to pay to insure the bank’s debt also surged recently to unprecedented levels.

“The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices,” Credit Suisse said in the statement.

Investors are worried about how the bank will cover the cost of its plan and what that would mean for its capital strength, especially during a period when the investment bank has been suffering heavy losses. Credit Suisse had a CET1 capital ratio of 13.5% at June 30, far above the international regulatory minimum of 8% and the Swiss requirement of 10%.

“The bond buyback is Credit Suisse’s way of muddling through the current situation as they hope to bring down its CDS spreads before they tap the bond market again to raise capital,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA. “Credit Suisse may also have picked the right time as the current market also happens to be one of the few windows this year for companies to raise bonds in the public market.”

Credit rating agency S&P affirmed Credit Suisse’s long-term rating at BBB Thursday, adding that the outlook remains negative amid continued uncertainties around its upcoming strategic review and targeted operating model.

What Bloomberg Intelligence Says:

Credit Suisse’s cash tender offer for some of its senior bonds issued out of the operating company may help to stabilize spread performance elsewhere in the bank’s liability structure. But the scope of the tender offer is limited — up to 3 billion francs — which may signify that the bank wants to preserve its hitherto healthy liquidity at this uncertain time.

Jeroen Julius, senior credit analyst

(Adds analyst comment in final paragraph)

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