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Credit Suisse Stuns Investors With 50% Bigger-Than-Expected Capital Raise

Tyler Durden's picture




 

Hot on the heels of Deutsche Bank's admission that all is not well, Credit Suisse's announcement last night of a major capital raise was greeted by buying pressure from investors. However, reality punched them in the face this morning as CS releasaed its investor day details and, as Bloomberg reports, is looking to raise up to CHF8 billion (almost 50% larger than Goldman Sachs investor survey suggested). Clearly, CS' has a much more massive capital shortfall than expected.

As Bloomberg reports,

Credit Suisse Group AG Chief Executive Officer Tidjane Thiam is considering selling stock in an offering that may raise 6 billion francs ($6.2 billion) to 8 billion francs, people with knowledge of the discussions said.

 

The bank plans to proceed with the sale after presenting a new strategy to investors later this month, said one person, who asked not to be identified because the matter is private. The company hasn’t made a final decision on the amount, the people said.

 

Thiam, 53, who took over from Brady Dougan in July, will present a strategy update on Oct. 21. He is under pressure to raise capital as Swiss regulators are looking to toughen requirements designed to shield the system from future financial crises. Thiam has said he plans to allocate more resources to wealth management and strengthen the bank’s position in Asia, while scaling back the investment bank, mirroring an approach of UBS Group AG.

 

Investors surveyed by Goldman Sachs Group Inc. on average estimated the bank will raise about 5.4 billion francs, according to a note from Oct. 1. Tougher capital requirements, litigation costs and the future direction of the company will all help determine the extent of any capital increase, UBS analysts Daniele Brupbacher and Mate Nemes said in a note on Friday.

 

Credit Suisse rose 2.2 percent to 24.10 francs at 5:16 p.m. in Zurich. The shares dropped 3.6 percent on Thursday after the Financial Times reported that the lender is preparing a “substantial” share sale.

 

“We are conducting a thorough assessment of Credit Suisse’s strategy, evaluating all options for the group, its businesses and its capital usage and requirements,” the bank said in a statement late Thursday. Tobias Plangg, a Zurich-based spokesman for Credit Suisse, declined to comment beyond the statement.

*  *  *

The reaction was a plunge and limit down halt before algos lifted it back to unch...

 

As we noted previously, the official narrative is well-known: the bank does not need the funds, it is simply a precaution ahead of new, more stringent capital requirements:

 
 

The capital is likely to be used to absorb losses triggered by a faster restructuring of the Swiss group, the people said. But Credit Suisse will also need higher capital ratios to comply with toughening demands from regulators.

 

The Swiss authorities are expected to announce an increase of minimum capital ratios over the coming months, which could prove more challenging for the bank than its better capitalised local rival, UBS. Credit Suisse’s common equity tier one capital ratio of 10.3 per cent compares with UBS’s 13.5 per cent

The real reason, of course, has nothing to do with this, and everything to do with the collapse of manipulation cartels involving Liebor, FX, commodities, bonds, equities, gold, and so on, because when banks can no longer collude with each other to push markets in any given direction, that's when they start losing money. That and, of course, the fact that central bank intervention in capital markets has made it virtually impossible to trade any more. Or as they call it, "miss capital ratios."

Expect many more such announcements in the coming weeks.

 

 

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Fri, 10/09/2015 - 11:37 | 6649073 knukles
knukles's picture

Shit!  You'd think it was Nazi Pe-lousy talking about the Republicans for all the miss is worth.

Fri, 10/09/2015 - 11:53 | 6649162 KnuckleDragger-X
KnuckleDragger-X's picture

Cluster, meet your new cell mate fuck......

Fri, 10/09/2015 - 12:23 | 6649286 Central Bankster
Central Bankster's picture

Just to be clear, equity dilution is BULLISH! BUY STAWKS!

 

- Central Banksters

Fri, 10/09/2015 - 12:37 | 6649359 Nenad
Nenad's picture

Obama will not finish his second term!

http://motivationdose.com/is-america-babylon/

Fri, 10/09/2015 - 11:39 | 6649087 kliguy38
kliguy38's picture

Nuttin ta worry bout here..........move along now and buy stawks ......

Fri, 10/09/2015 - 11:40 | 6649096 NoDebt
NoDebt's picture

<contagion>

What was that?  Did you hear that?  I thought I heard something.

Fri, 10/09/2015 - 11:45 | 6649124 Mark Mywords
Mark Mywords's picture

Nope. Nothing. Now let's return to the waste of money and time known as the "Planned Parenthood witch hunt".

And the "war" on Christmas, which has only just begun once again in the minds of Christnuts.

Fri, 10/09/2015 - 11:51 | 6649153 PRO.223
PRO.223's picture

Although you used "witch hunt" figuritively, I think you're much more accurate than you know.

 

Fri, 10/09/2015 - 12:13 | 6649242 Mark Mywords
Mark Mywords's picture

http://www.huffingtonpost.com/entry/jason-chaffetz-planned-parenthood-fu...

Chaffetz said Thursday that he still supports digging into Planned Parenthood's activities, even if they're using their money appropriately.

"I think there will continue to be investigations," he said.

Big government, supported by those who love small government. "From womb to tomb" freedom lovers. Psychotic. Orwell would be amazed.

Fri, 10/09/2015 - 12:51 | 6649445 TheReplacement
TheReplacement's picture

If you expect me to pay taxes to support the racist Planned Parenthood then you better believe I support having a government agency inspect your uterus on a daily basis to be sure my tax dollars aren't being wasted or abused.

 

Fri, 10/09/2015 - 12:12 | 6649237 NoVa
NoVa's picture

3 week member, huh?

Suggest a cure for your disease > stop posting and read & ponder the wisdom on this blog.  You will soon be cured of your mental health issues.

 

Fri, 10/09/2015 - 12:15 | 6649250 Mark Mywords
Mark Mywords's picture

A lot longer than that, NoVa. A LOT longer.

It's pointless to look at someone's length of time on here, when screennames can be changed.

Wisdom can not be found in those who do not possess it.

Fri, 10/09/2015 - 11:42 | 6649101 bilbert
bilbert's picture

"Thiam, 53, who took over from Brady Dougan in July, will present a strategy update on Oct. 21. He is under pressure to raise capital as Swiss regulators are looking to toughen requirements designed to shield the system from future financial crises."

 

Possibly CURRENT financial crisis?

Fri, 10/09/2015 - 11:42 | 6649102 TheAntiProgressive
TheAntiProgressive's picture

Ooooppppsss didn't see that one coming.

Fri, 10/09/2015 - 11:44 | 6649104 LetThemEatRand
LetThemEatRand's picture

This gives us context for the previous story here regarding workers being asked to work for free.  Bankers have been exploiting the entire economy, existing outside the law and reaping billions in benefits for doing nothing more than betting on rigged games.  Meanwhile, large corporations have been downsizing workforce (and offshoring), and using free Fed money to buy their own stock while the mostly connected Princeton/Harvard etc club management reap billions in bonuses for the trouble.  No wonder most American workers don't buy into the "work hard at your shit job and you'll be rewarded in the future" bullshit.  Carlin said it best -- they call it the American Dream because you have to be asleep to believe it.

Fri, 10/09/2015 - 11:56 | 6649176 KnuckleDragger-X
KnuckleDragger-X's picture

Raises for the C-suite and lay-offs for the peons.......

Fri, 10/09/2015 - 11:48 | 6649135 astoriajoe
astoriajoe's picture

Just got an email that HSBC is looking to do a 15 year CD with part of it paying up to 4.25%. I reckon I'll get a few more of those in the coming weeks. 

Fri, 10/09/2015 - 11:49 | 6649143 RadioactiveRant
RadioactiveRant's picture

While STAN fires 1,000: http://gu.com/p/4d6kk/sbl

and the UK gov steals another baby: http://bit.ly/1PkVMgw

Fri, 10/09/2015 - 11:54 | 6649166 Dr. Engali
Dr. Engali's picture

Are they selling stock to fund a buyback? Is that their "new" strategy?

Fri, 10/09/2015 - 12:48 | 6649431 astoriajoe
astoriajoe's picture

only if they get to underwrite it themselves. 

Fri, 10/09/2015 - 12:26 | 6649307 Grandad Grumps
Grandad Grumps's picture

It seems that international banks raise capital the same way that countries raise capital. They just have a foreign bank create new money out of thin air and give it to them.

Viola ... new capital raised.

Fri, 10/09/2015 - 12:33 | 6649338 Space Animatoltipap
Space Animatoltipap's picture

What the problem in the era of strike a few keys "money"?

Fri, 10/09/2015 - 12:55 | 6649470 Soul Glow
Soul Glow's picture

Everything is ok.  Draghi bought the issue.

Fri, 10/09/2015 - 14:40 | 6649995 Bernoulli
Bernoulli's picture

I thought Deutsche Bank was bad, but today I looked at Credit Suisse annual report of 2014.

All I can say is

THIS. WON'T. END. WELL.

Please anybody correct me if I got something wrong

https://www.credit-suisse.com/media/cc/docs/publications/annualreporting...)

I didn’t read the whole document, but first looked at the largest amounts in CHF-terms. If I didn’t miss anything, by far the largest amounts are the “notional amounts” of derivatives, The total amount (in Trading) is 51 trillion CHF (= 51’000’000’000’000 CHF?). A bit further down in the report I read that the notional amounts are given "as an indication of the volume of derivative activity within the Group". So this is an indication of the order of magnitude (on December 31st 2014?), could be 10 trillion more at times, or 10 trillion less?!? And then further down, I read that some of derivative contracts apparently don't need to be disclosed at all (under US GAAP, surprise, surprise!), if some conditions are met.

Next, we are to believe, that the “fair value” of those gigantic risks are not the notional values, but the positive and negative replacement values “the amount receivable from or payable to the counterparty if the derivative transaction were to be settled at the reporting date" or something like the cost to re-enter into the same bet if the counterparty defaults or the cost to close the position on 31st of December 2014. This doesn’t make much sense to me at all: If a company owns a building and a shareholder wants to know the biggest potential damage a fire could cause, I would certainly not report it as the cost of buying fire insurance. Or put differently: A roulette player in the casino puts 100 CHF on 36 and he reports the fair value of his bet is 100 CHF, although he hopes to win 3’500 CHF with the bet (= buying to open a put or a call option?). Even more striking: The casino takes the 100 CHF bet and reports the maximum risk is 100 CHF although the casino could potentially lose 3’500 CHF (= selling a put or a call option to open?).

But then even how are the “fair values” determined: They are "calculated" according to different levels (page 323):

- Level 1 means if I there are actually prices out there at a certain date (more or less correct?) --> less than 1% of the derivatives fall in that category

- Level 2 means there is no price but something similar is taken instead or “any other” input is available (sounds quite fuzzy) --> about 98% of the derivatives fall in that category

- Level 3 means the value is essentially made up ("reflect the Group's own assumptions") --> less than 1% fall in that category

But what remains one of the big unknowns is: How much leverage is behind all those bets, especially the Level 2 and Level 3 ones?

After this massive apparently legal (!) accounting gimmick, the next hammer hits me. These “fair value” amounts, two orders of magnitude smaller than the notional amount are not the final relevant values in the balance sheet, they are further reduced by “netting”. We read: "Derivative contracts are reported on a gross basis by level. The impact of netting represents legally enforceable master netting agreements". And "Netting agreements are contracts between two parties where under certain circumstances, such as insolvency, bankruptcy or any other credit event, mutual claims from outstanding business transactions can be offset against each other. The inclusion of a legally binding netting agreement reduces the default risk from a gross to a net amount".

This means that since Credit Suisse has bilateral contracts potentially reducing credit risks "under certain circumstances" (can those contracts be enforced? under which jurisdiction? has this process ever been legally tested?), only a small fraction of the so called fair values are shown on the balance sheet. Of the original derivatives position of 50 trillion, 38 billion remain on the assets side and 37 billion on the liabilities side. Four orders of magnitude less. Then I am not sure, I didn’t check in detail but how does this feed into risk-weighted assets under Basel III regulations, which is again about a third of the assets on the balance sheet and the capital to be held against those which is maybe 10% of those risk weighted assets?

Does this mean that the value of capital Credit Suisse has to hold against derivatives is five orders of magnitude smaller than the notional amounts of the derivatives?

How THE FUCK is this even legal?

As I said. This won't end well. Run for cover!

Fri, 10/09/2015 - 16:02 | 6650387 ableman28
ableman28's picture

How did these banks ever pass the bogus stress tests?  There is no way a capital shortfall of this size emerged overnite.  And the kind of exposure that generates this kind of capital gap is usually easily identified in such a way that reserves are required to offset potential reversals.

There are so many lies being told its impossible to recognize the truth.

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