Credit Suisse Slump Takes Shares Near Rights Offer Price
Comment of the Day

December 01 2022

Commentary by Eoin Treacy

Credit Suisse Slump Takes Shares Near Rights Offer Price

This article from Bloomberg may be of interest to subscribers. Here is a section:

The threshold of 2.52 francs is “the ‘hard underwriting’ price for the consortium of 19 banks,” JPMorgan & Co. analysts said in a research note. If Credit Suisse’s shares keep trading above that level until “the last day of rights trading on Dec. 6, 2022, we can assume at that point the capital raise was most likely a success.”

Having a large number of underwriters makes it easier to find buyers and reduces the risk for the investment banks to get stuck holding a large amount of the shares. As part of the lender’s capital raise plans, Saudi National Bank to invest up to 1.5 billion francs in the lender, becoming a top shareholder. 

Credit Suisse Chairman Axel Lehmann, speaking at a conference in London on Thursday, said that the stock would stabilize after the rights issue is completed and that investors should expect volatility until then. The new shares are due to start trading on Dec. 9. 

“I cannot predict where the share price is going,” Lehmann said. Until the end of the capital raise process, “we will have a little bit of volatility, but then I think it will start to somewhat stabilize and bottom out, and then we go from there.”

Eoin Treacy's view

Credit Suisse’s share price continues to accelerate lower. A catalogue of management errors has seen the share lose close to 90% of its value since 2013. Tightening global liquidity is a proximate cause of stress, but the bank also needs to address many of the internal controls that led to this condition too.
The new CEO’s bid to raise fresh liquidity is a last-ditch effort to plug holes in the balance sheet. The big question outstanding is whether it will be successful.  

This is just one more example of liquidity conditions tightening around the world. Ahead of a recession it is normal to see liquidity issues arise. In just the last month, the UK pension system, the FTX crypto exchange and South Korean perpetual bonds have all been headline-grabbing liquidity issues.

While none are related to one another, they are all symptoms of the wider issue. Global monetary conditions are tightening and something big is going to break. It remains to be seen if Credit Suisse is it.

Blackstone limiting redemptions from its real estate funds is another sign liquidity is tightening.

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