Credit Suisse pledged to buy back up to $3 billion of its own debt, in an effort to assuage investor anxieties before the announcement of a significant strategy revamp.
In that the bank has adequate liquidity to take advantage of the current downturn in the debt markets and buy its own debt at a discount, the disclosure is a show of confidence.
However, in Friday’s trade, shares and bonds of Credit Suisse increased while the price of default insurance decreased.
In addition, the Zurich-based bank had a turbulent week as investors doubted its soundness in the midst of a general sell-off. At the end of this month, Chief Executive Officer Ulrich Koerner ought to provide details on the bank’s second strategic review in a year.
Also, this is largely regarded as a crucial chance to rebuild trust in the institution following more than a year of losses and management blunders.
According to Filippo Maria Alloatti, head of financials credit at Federated Hermes Ltd. in London, the debt repurchase plan is “a prudent move, it promotes trust in the liquidity of the balance sheet and helps cut Credit Suisse’s funding costs.”
The debt repurchase is similar to a $5.4 billion offer made by Deutsche Bank AG in 2016 as the German institution was being battered by the markets, albeit the calmer effect was fleeting.
Furthermore, the offer includes debt securities in euros and pounds sterling for up to 1 billion euros ($980 million), as well as a separate offer for assets in US dollars worth up to $2 billion.
Besides, at 12:30 p.m. in Zurich, shares of Credit Suisse were up 6.9% and trading for 4.50 Swiss francs. According to ICE Data Services, the price of protecting against default on five-year senior debt has dropped to 322 basis points from earlier this month’s record highs.
Nevertheless, investors have been concerned about the bank’s ability to pay for its restructuring plan and the impact it would have on the bank’s capital position, particularly at a time when the investment bank has been suffering significant losses.
