Dixit Joshi won’t forget his first day as Credit Suisse Group AG’s chief financial officer in a hurry. And yet the experience won’t have been entirely unfamiliar for the former Deutsche Bank AG high flier.
Shares in the Swiss banking giant plummeted 12% to an all-time low on Monday after a weekend of fevered Twitter speculation about its financial health, before they regained almost all of the losses later in the day.
The wild gyrations show the difficulty for Credit Suisse in managing the febrile confidence of investors as it rushes to devise a repair plan for its investment bank, which has been on the ropes since suffering massive losses last year from backing Archegos Capital Management. The price investors have to pay to insure the bank’s debt hit record levels, leading some to harken back to the fear-driven days of 2008.
In reality, several analysts say the better comparison is to Deutsche Bank in 2016 and 2017 -- a time when Joshi helped devise its own crisis response to a surge in the German bank’s credit-default swaps. Morgan Stanley went through similar in 2011. Both survived the ordeal.
“This is not 2008,” Citigroup Inc.’s Andrew Coombs said.
Indeed, the shares climbed more than 4% on Tuesday, taking them above where they closed on Friday, when Chief Executive Officer Ulrich Koerner published a memo that helped set off the turmoil. Costs to insure the bank’s debt against default also declined.
Nevertheless, the initially panicked stock-market reaction on Monday to rising CDS costs -- and the selloff over the past couple of months -- points to a worsening set of options available to the Swiss firm ahead of its emergency strategy review on Oct. 27, which is expected to include a large-scale investment banking retreat. The shares have lost about a quarter of their value since Credit Suisse announced the strategic review.
Investors are worried about how the bank will cover such a plan’s cost -- which many analysts have pegged at $4 billion -- and what that would mean for its core capital ratio of 13.5%, especially during a period when the investment bank has been suffering heavy losses. With its shares on the floor after dropping more than 95% from their peak, the lender hopes to raise cash through disposals rather than a highly dilutive rights issue of the type Deutsche Bank ended up doing.
“If one of the options includes a capital raise, it’s always going to be tough for a stock to steady when the amount of potential issuance and dilution is unknown,” said Alison Williams, a banking analyst at Bloomberg Intelligence. “Tough markets increase the impatience.”
A sale of Credit Suisse’s structured-products group, which trades securitized debt, has attracted interest from potential buyers including BNP Paribas SA and Apollo Global Management Inc., but there’s skepticism about how easy it will be to sell such assets -- or secure good prices -- when rising interest rates have put them under pressure. The broader backdrop for investment banking is hardly any rosier: BI estimates that fees in the US may have dropped by 50% or more in the third quarter.