Is Credit Suisse now trolling itself? That’s what it looked like this week as the bank chose the very day of its latest profit warning to announce the latest iteration of the Credit Suisse Worry Barometer.
Happily for the bank, the barometer – a survey of the biggest concerns among the Swiss population – didn’t feature Credit Suisse in the top 10 worries. But that might not come as much comfort to investors watching the bank’s stock price.
They will have two particular levels at the forefront of their minds right now – SFr3.70 ($3.91) and SFr2.52.
The first is the theoretical ex-rights price (Terp) for the SFr2.24 billion rights issue that is under way. The Terp matters because it is what a pre-announcement share price should theoretically fall to after the dilutive effect of a capital increase, assuming all else is equal.
All else is never equal, of course, and never more so than when Credit Suisse is concerned. Rights issues are carried out over weeks of a moving market, and with Credit Suisse there is also the drip-feed of bad news to cope with.
In the latest episode of that, the bank warned on November 23 of an expected SFr1.5 billion loss when it reports fourth-quarter earnings on February 9, 2023, – and noted that, as of November 11, net asset outflows from the bank stood at 6% of assets under management at the end of the third quarter – equivalent to a drop of SFr84 billion in just six weeks.
Wealth management outflows had since slowed substantially, but had not yet reversed, the bank said, although client balances had stabilised in the Swiss bank division.
Risk factors
The bank blames lurid media coverage and rumours spread on social media for much of the damage, to the extent that as of the third-quarter financial report, it has added “the impact of social media speculation and unsubstantiated media reports about our business and its performance” to its standard list of risk factors.
Until the November 23 disclosures, the bank’s stock price had in fact been just about holding up. It had resisted closing below the Terp, implying that the market was giving the firm’s plans the benefit of the doubt.
That said, the situation is flattered by the fact that the reference price for the rights issue was set at the volume weighted average price (Vwap) over the course of October 27 and 28. That came out at SFr4.07, but that was already 14% below the close on October 26, the day before Credit Suisse announced its restructuring and capital-increase plans.
The bank had already stated its desire to price the rights issue at a 32% discount to the Terp, and so the reference price ultimately determined the rights issue terms of 2-for-7 at SFr2.52 – the second level that investors will be focused on in the weeks ahead.
Rights trading runs from November 28 to December 6, and the exercise period ends on December 8, when the result will be known.
What support there was finally broke on the announcement of the profit warning, with the stock dropping through the SFr3.70 level and continuing to head lower. At just after 11am in Zurich on Friday, November 25, the shares touched SFr3.47, more than 6% below the Terp and fully 27% below the October 26 close.
The S&P500 Financials Index rose 8.5% over that period to the close on November 23, before the Thanksgiving holiday in the US.
At the SFr3.47 level, Credit Suisse was valued at SFr10.8 billion – and that includes the SFr1.765 billion injected via the first capital increase, the private placement that was wrapped up on November 24. Add in the remaining SFr2.24 billion that is still to be raised through the rights issue, and the bank’s market cap would stand at about SFr13 billion.
That would be a mere SFr400 million above the October 26 level in spite of some SFr4 billion being raised since then.
