Credit Suisse may face US$8b capital shortfall in 2024

Credit Suisse Group AG faces a capital shortfall of as much as 8 billion Swiss francs ($8 billion) in 2024, analysts at Goldman Sachs Group Inc. estimate, underscoring the challenges for the troubled lender as it nears what’s likely to be a deep restructuring.

At the very least, the Zurich-based firm is facing a hole of 4 billion francs, given the need to restructure the investment banking operations at a time of “minimal” capital generation, analysts led by Chris Hallam wrote. That means it would be “prudent” for the lender to raise capital.

“Credit Suisse continues to face cyclical and structural challenges,” the analysts wrote in a note, maintaining a sell recommendation on the stock.

Credit Suisse is exploring radical cuts to its volatile investment bank, including spinning off large parts and hiving off its securitized products group, as Chief Executive Officer Ulrich Koerner seeks to put an end to years of scandals and losses. Yet with a key question — how to pay for it — unanswered roughly two weeks before he’s due to present his plan, speculation about the lender’s financial strength has sent its shares on a rollercoaster ride.

While raising capital is one option under consideration, Credit Suisse executives would strongly prefer not to issue equity with the share price near record lows, Bloomberg News previously reported. 

Credit Suisse had a CET1 capital ratio of 13.5% at June 30, well above the international regulatory minimum of 8% and the Swiss requirement of about 10%. Its liquidity coverage ratio is one of the highest among European and US banking peers. 

Goldman’s comments were echoed by Jefferies analyst Flora Bocahut, who said in a note on Tuesday that Credit Suisse needs to build about 9 billion Swiss francs of capital in the next two-to-three years. But given the dilutive nature of a capital increase, Bocahut expects Credit Suisse to prioritize asset disposals, she wrote in a note.

Bloomberg News reported Friday that bidders are lining up for the bank’s securitized products unit, a key pillar in the downsizing of its investment banking operations. The sale process, which is far advanced, has drawn interest from Pimco, Sixth Street and an investor group including Centerbridge Partners.

The bank is also considering bringing in an outside investor to take a partial stake and inject money into a spinoff of its advisory and investment bank businesses, people familiar with the matter have said. – BLOOMBERG