Credit Suisse Group AG was plunged into fresh market turmoil after Chief Executive Officer Ulrich Koerner’s attempts to reassure employees and investors backfired, adding to the uncertainty surrounding the bank.
The stock, which had already more than halved this year before Monday’s sell-off, fell as much as 12 percent to a record low before clawing back most of those losses and closing Zurich trading about 1 percent lower. That was accompanied by a spike in the cost to insure the bank’s debt against default, which jumped to its highest ever.
Koerner, for the second time in as many weeks, had sought to calm employees and the markets with a memo late Friday stressing the bank’s liquidity and capital strength. Instead, it focused attention on the dramatic recent moves in the firm’s stock price and credit spreads, and investors rushed for the exit when trading reopened after the weekend. The shares staged a comeback as several analysts backed Koerner’s view of the bank’s financial strength.
While acknowledging that the bank was at a “critical moment,” Koerner pledged to send employees regular updates until the firm announces its new strategic plan on Oct. 27. At the same time, Credit Suisse again sent around talking points to executives dealing with clients who brought up the credit default swap, according to people with knowledge of the matter.
“Credit Suisse is a buy for the brave at these levels,” Citigroup analysts including Andrew Coombs wrote in a note to investors. “But headline news flow is likely to remain negative and we do see significant execution risk in any new strategic plan.”
While the swaps are still far from distressed — and also part of a broad market selloff — they signify deteriorating perceptions of creditworthiness for the scandal-hit bank in the current environment. The swaps now price in a roughly 23 per cent chance the bank defaults on its bonds within 5 years.
Some clients have used the rise in the CDS this year to ask questions, negotiate prices or use competitors, the people said, asking to remain anonymous discussing confidential conversations.
A Credit Suisse spokesman declined to comment.
Still, prominent figures took to Twitter over the weekend to dismiss some of the rumors circulating on social media prompted by the widened CDS spread as “scaremongering.” Saba Capital Management’s Boaz Weinstein tweeted “take a deep breath” and compared the situation to when Morgan Stanley’s CDS was twice as wide in 2011 and 2012.
Koerner, named CEO in late July, has had to deal with market speculation, banker exits and capital doubts as he seeks to set a path forward for the troubled lender, which has been hit by a string of financial and reputational hits. The firm is finalizing plans that will likely see sweeping changes to its investment bank and may include cutting thousands of jobs over a number of years, Bloomberg has reported.
Analysts at KBW also estimates that the bank may need to raise 4 billion Swiss francs (US$4 billion) of capital even after selling some assets to fund any restructuring, growth efforts and any unknowns.
Credit Suisse’s market capitalization has dropped to around 10.4 billion Swiss francs, meaning any share sale would be highly dilutive to longtime holders. The market value was above 30 billion francs as recently as March 2021.
“Somehow they have to come up with a few billion to cover the cost of the restructuring,” said Andreas Venditti, a banks analyst at Vontobel. “Management will try at all costs to avoid a dilutive share issuance but they are a forced seller right now.”
Bank executives have noted that the firm’s 13.5 per cent CET1 capital ratio at June 30 was in the middle of the planned range of 13 per cent to 14 per cent for 2022. The firm’s 2021 annual report said that its international regulatory minimum ratio was 8 per cent, while Swiss authorities required a higher level of about 10 per cent.
Regulators in both the UK and Switzerland, who have been keeping a close eye on Credit Suisse since the multibillion-dollar Archegos Capital loss in 2021, continue to monitor the bank’s stability, according to people with knowledge of the matter.
Spokespeople for the UK’S Prudential Regulation Authority and Switzerland’s Finma declined to comment.
The KBW analysts were the latest to draw comparisons to the crisis of confidence that shook Deutsche Bank AG six years ago. Then, the German lender was facing broad questions about its strategy as well as near-term concerns about the cost of a settlement to end a US probe related to mortgage-backed securities. Deutsche Bank saw its credit-default swaps climb, its debt rating downgraded and some clients step back from working with it.
The stress eased over several months as the German firm settled for a lower figure than many feared, raised about 8 billion euros (US$7.8 billion) of new capital and announced a strategy revamp. Still, what the bank called a “vicious circle” of declining revenue and rising funding costs took years to reverse.
There are differences between the two situations. Credit Suisse doesn’t face any one issue on the scale of Deutsche Bank’s US$7.2 billion settlement, and its key capital ratio of 13.5 per cent is higher than the 10.8 per cent that the German firm had six years ago.
The stress Deutsche Bank faced in 2016 resulted in the unusual dynamic where the cost of insuring against losses on the lender’s debt for one year surpassed that of protection for five years. Credit Suisse’s one-year swaps are still significantly cheaper than five-year ones.
Last week, Credit Suisse said it’s working on possible asset and business sales as part of its strategic plan which will be unveiled at the end of October. The bank is exploring deals to sell its securitized products trading unit, is weighing the sale of its Latin American wealth management operations excluding Brazil, and is considering reviving the First Boston brand name, Bloomberg has reported.
The bank today also decided to postpone its capital increase for a real estate fund amid high volatility in the market. The postponement echoes a challenging period a year ago after the Greensill and Archegos scandals whereby the bank slowed down new fund issuance as it reigned in risk appetite.
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
