Credit Suisse plans to raise $4.1 billion and cut 2,700 jobs

Credit Suisse Group AG has taken the most dramatic steps yet to fix the bank, unveiling a restructuring that will see a multi-billion dollar capital raise, thousands of job cuts and the abolition of the investment bank .

The company plans to raise 4 billion francs ($4.1 billion) through a rights issue and sell shares to investors including the Saudi National Bank, it announced on Thursday. It’s basically breaking up the investment bank, separating the advisory and capital markets business, and selling the majority of its SPG business to Apollo Global Management Inc. and Pacific Investment Management Co.

The overhaul is an urgent attempt to restore Credit Suisse’s credibility after a string of big losses and management chaos shattered its status as one of Europe’s most prestigious lenders. Chief Executive Ulrich Koerner and Chairman Axel Lehmann, appointed as crisis managers, now face the task of executing the biggest overhaul in the bank’s recent history while seeking to protect the wealth management unit that will determine its future.

“The new Credit Suisse will definitely be profitable from 2024,” Koerner said in an interview with Francine Lacqua of Bloomberg Television. “We don’t want to over-promise and under-deliver, we want to do it the other way around.” Shares fell 16% in Zurich as investors digested the combined restructuring charges of around $6.6 billion and the dilutive effect of stock sales. The capital increase could make Saudi National Bank, backed by the country’s main sovereign wealth fund, one of the main shareholders of Credit Suisse, with a stake of up to 9.9%.

Bank executives had wanted to avoid a capital raise as shares were trading near record highs, but saw cash outflows from wealth management clients and ultimately decided to raise capital to help consolidate their finances. The bank posted a net loss of 4.03 billion francs in the third quarter and said it also expected a loss in the fourth quarter.

“Credit Suisse appears to want to put a line on the concerns of wealth management clients,” JPMorgan Chase & Co. analyst Kian Abouhossein wrote in a note to clients on Thursday. “Material questions remain to properly assess the outcome of IB’s restructuring, which is relatively more complicated than what we have seen in the case of UBS and Deutsche Bank.”

The company will also begin workforce reductions of 2,700 positions in the fourth quarter and said its workforce is expected to decline from around 9,000 to 43,000 by 2025. It is also looking to reduce the cost base by 15% , or 2.5 billion francs, on this date.

Some of the biggest changes will come to the investment bank, including the departure of its chief, Christian Meissner and the revival of the First Boston brand. The separate business will include the bank’s historically strong leveraged finance and advisory unit and will be led by Michael Klein, a former Citigroup trader known for his Middle East ties.

The bank has already lined up an outside investor ready to inject $500 million into the business, according to a person with direct knowledge of the matter. The new company will be a partnership model, with key employees having a level of ownership.

The bank’s overriding objective as an investment bank is to reduce risk-weighted assets. It places European lending and capital markets activities in the “capital release unit” it created to house the assets it plans to liquidate.

The restructuring comes as third-quarter results highlighted challenges ahead. The investment bank continued to struggle and wealthy clients fled. The bank posted a quarterly loss of more than $4 billion, including a CHF 3.7 billion write-down of deferred tax assets related to the overhaul. The restructuring will cost an additional 2.9 billion francs until 2024.

To help pay for the overhaul, Credit Suisse said it would only pay a “nominal” dividend over the next two years, before returning to “significant” payments from 2025.

Koerner’s overhaul is the culmination of a three-month strategic review, sparked by a bigger-than-expected loss of 1.59 billion francs in the second quarter that spelled the end of CEO Thomas Gottstein’s short-lived tenure. The former investment banker – hired in 2020 after Tidjane Thiam left over a spy scandal – presided over the financial and reputational blows of the collapses of Archegos Capital Management and Greensill Capital, while overseeing a whirlwind of board changes.

Less than a year ago, Antonio Horta-Osorio, who had managed to turn Britain’s Lloyds Banking Group Plc around, made his own attempt to try to turn the bank’s situation around. The then president decided to exit the hedge fund industry at the center of the Archegos scandal and shift about $3 billion in capital from investment banking to private banking. It stopped before the more dramatic changes that some analysts and investors had imagined.