Credit Suisse (NYSE:CS), a Swiss banking giant, has revealed how it intends to raise 4 billion Swiss francs to resolve one of the biggest crises in the institution's 166-year history.
The bank reported a quarterly loss of $4 billion last week and touted the need for a "radical restructuring." As part of it, it plans to lay off 9,000 employees and raise billions. On Monday, we learned the details of the plan for this massive capital increase.
Credit Suisse has offered existing as well as new clients the opportunity to buy new shares. The institution is issuing 462 million shares to new investors at a price of 3.82 Swiss francs, equivalent to the 94% weighted average price on October 27 and 28. The new funding should provide access to capital at 1.86 billion Swiss francs.
Existing investors, meanwhile, will be able to buy 889 million shares at 2.52 Swiss francs. Subscription rights will depend on how large a percentage stake in Credit Suisse they currently hold.
"It is expected that seven pre-emptive subscription rights entitle their holder – subject to certain restrictions under applicable local laws – to purchase two new shares at an expected offer price of CHF 2.52 per share, in line with the previously published approximate discount to the theoretical ex-rights price (TERP) of 32% to the reference price and resulting in gross proceeds from the rights issue to Credit Suisse Group AG of approximately CHF 2.24 billion," Credit Suisse commented in a statement.
The Biggest Crisis in the bank's 166-Year history
Analysts and experts are convinced that the current crisis facing Credit Suisse is one of the biggest in the institution's 166-year history. A series of recent scandals have badly damaged the bank's reputation. These include a $5.5 billion loss in connection with the collapse of the US-based investment firm, Archegos.
In October alone, the bank agreed to pay a $495 million settlement in connection with the 'Residential Mortgage Backed Securities' part of the business and a $234 million settlement in France.
The latest quarterly results released last week did not certainly improve investor sentiment. The institution reported a net loss of 4.034 billion Swiss francs, which is higher than analysts had expected (567.93 million Swiss francs). The result was also significantly worse than the 434 million Swiss francs profit reported in the same quarter a year earlier.
