San Francisco Frontiers - Credit Suisse chief unveils master plan to fix bank's woes

Analysts, rating agencies, banking regulators and regular customers will all be fixed on the roadmap rolled out by Koerner, who is considered a specialist in bank restructuring and has had a hundred days to diagnose the problems at Switzerland's second-biggest bank.

Speculation in the build-up to Thursday's announcement has concentrated on whether thousands of job cuts will be announced, or if a capital increase or disposals to finance the restructuring are on the cards.

The amount of capital that the bank could need is estimated at between four and nine billion Swiss francs ($4-9 billion), according to various specialists in the sector.

"We think the group may need to raise between six and nine billion Swiss francs before disposals to execute a credible restructuring plan," said Barclays analysts.

The bank could sell assets in order to wait for better conditions to launch a capital increase, according to Flora Bocahut, an analyst at the US investment bank Jefferies.

"Strategic changes need to happen," she said, as the bank, due to its losses, will eventually no longer achieve its medium-term solvency objectives.

Rumours are swirling around securitised products that make it possible to transform illiquid assets into securities that can be sold on the financial markets.

According to The Wall Street Journal business newspaper, the bank is about to seal their sale despite it being a very profitable business.

- Sluggish market -

The market context is not particularly buoyant.

On Tuesday, Switzerland's biggest bank UBS, like the major US investment banks, reported a drop in income in its investment bank arm.

In the third quarter, high market volatility caused by Russia's war in Ukraine, combined with recession fears, dampened demand for transactions such as debt issues, initial public offerings or mergers and acquisitions.

"The fast-deteriorating economic environment and recent market turbulence may complicate the execution of management's restructuring plans," the rating agency Standard and Poor's warned in early October.

- Business woes -

The markets will be watching out for Koerner's plans on Credit Suisse's investment banking arm. Investors have been calling for reform for several years.

The capital-guzzling branch was the source of heavy losses that plunged Credit Suisse's accounts into the red, eclipsing its other, more stable activities such as wealth management or its Swiss domestic banking services.

Credit Suisse's investment bank suffered a loss of 3.7 billion Swiss francs in 2021 and backed that up with a 992 million Swiss franc loss in the first half of 2022.

It was hit by the implosion of the US fund Archegos, which cost Credit Suisse more than $5 billion.

Meanwhile its asset management branch was rocked by the bankruptcy of British financial firm Greensill, in which some $10 billion had been committed through four funds.

- Share price plunge -

In October 2021, Credit Suisse was also fined $475 million by the US and British authorities for its loans to state-owned companies in Mozambique, at the heart of a corruption case.

The bank already went through a major restructuring under Tidjane Thiam, its chief executive from 2015 to early 2020.

Credit Suisse is one of 30 banks globally deemed too big to fail, forcing it to set aside more cash to weather a crisis.

Banking experts are therefore dismissing social media rumours earlier this month of a "Lehman Brothers moment", referencing the US bank which collapsed, triggering the 2008 financial crisis.

While many industry experts think a bankruptcy highly improbable, these rumours helped drag its share price down to a low of 3.158 Swiss francs.

Credit Suisse shares closed Wednesday at 4.763 Swiss francs on the Swiss stock exchange's main SMI index.

J.Martinez--SFF