Credit Suisse and the true black Thursday fall-out: 4.7bn CHF rights issue and 1.35bn CHF private placing as Q3 profit lower than anticipated

Credit Suisse, one of the world’s largest handlers of interbank FX order flow has announced its third quarter results, which make for less than satisfactory reading.

The financial institution, which capital buffers took a vast hit as a result of the removal of the 1.20 peg on the EURCHF pair in January this year, has stated today that it intends to raise 6.05 billion Swiss Francs in new capital and reduce costs using measures which include downsizing its investment banking division.

The capital-raising program will take the form of a 4.7 billion CHF rights issue, and a 1.35 billion CHF private placing in addition to a reduction in the allocation of fiscal resources to its investment banking operations.

Under the then-new leadership of CEO Tidjane Thiam, Credit Suisse recorded a contraction in its Common Equity Tier 1 capital ratio at the end of the first quarter of this financial year from 10.1% to 10%, however the bank still made a profit which was higher than anticipated by analysts.

Although during the first quarter of this financial year, the entire financial and electronic trading sector was still counting the cost of a very fresh wound following the unprecedented day of currency market volatility on January 15, Credit Suisse did not begin to experience lower results until the third quarter.

At the end of the first quarter of the year, it was anticipated that Mr. Thiam would look toward capital-raising methods to restore the Common Equity Tier 1 capital ratio because this is an industry-wide yardstick which is used as a reliable method of demonstrating a bank’s ability to withstand any losses.

In order to raise capital, Mr. Thiam has announced that the program will take the form of plans to remove 3.5 billion CHF from the firm by 2018, and refocus the entire company’s operational priorities on the domestic market in Switzerland and wealth management in the Asia Pacific region.

IPO plans for Swiss banking division

Additionally, Credit Suisse is looking toward putting forward an initial public offering (IPO) in order to look toward the public listing of its Swiss banking division, a process which will take approximately two years to reach IPO stage.

According to Mr. Thiam, there will be no downsizing or increases in headcount at the bank’s London operations, as he considers the British arm to be operating at the correct capacity.

With the third quarter results having shown a profit which was less than anticipated by analysts by quite some margin, with total profit for the third quarter weighing in at 779 million CHF compared to the analysts expectations of 858 million CHF for the three month period.