What happened
Share of the Swiss bank Credit Suisse (CS) are trading roughly 11.7% down as of 11:26 a.m. ET today after rumors of a potential capital raise spooked investors.
So what
Citing anonymous sources, Reuters reported today that Credit Suisse is speaking with investors about potentially raising capital as the beleaguered bank continues to attempt to turn itself around.
The Reuters report also suggested that as Credit Suisse revamps its investment banking operations, it is considering exiting the U.S. market, although a Credit Suisse spokesperson responded to the report, saying the bank has no plans to do so.
Credit Suisse has run into all sorts of problems in recent years, including its involvement with Archegos Capital and Greensill Capital, both of which collapsed, and regulatory difficulties as well.
Credit Suisse hired new CEO Ulrich Körner in July and has embarked on a transformation plan that will include cutting costs and drastically changing its investment bank, whether by shrinking it or splitting it into three separate units. Management is also contemplating selling part of its securitization business.
"The net charge for an securitised products group exit could potentially be absorbed without the need for a capital raise, which we expect management would be keen to avoid with the stock trading on only 0.3 times price to tangible book value," said Citigroup analyst Andrew Coombs in a research note.
Now what
While Credit Suisse is clearly a bit of a mess right now, the bank only trades at 24% of its tangible book value, or net worth, after today's fall, which likely prices in a lot of the difficulties the bank is facing. Sometimes, embattled banks can be great investments if they can turn the ship around.
However, before I would think about investing, I would need more clarity on Credit Suisse's transformation plans and on whether it plans to raise capital, which would dilute existing shareholders.
