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Credit Suisse offers $3 billion to buy back its own debt in move to calm investors

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In 2016, Credit Suisse settled claims that it misled investors in residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis. Photo by Ennio Leanza/EPA
In 2016, Credit Suisse settled claims that it misled investors in residential mortgage-backed securities it sold in the run-up to the 2008 financial crisis. Photo by Ennio Leanza/EPA

Oct. 7 (UPI) -- Credit Suisse has issued an offer to buy back $3 billion of its own debt in a strategic show of stability amid a sagging bond market and a recent uptick in the number of credit defaults throughout Switzerland.

The stock price for the global investment bank surged by as much as 8% Friday after the announcement, although its shares were 50% lower than they were at this same time last year.

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The latest move by the Zurich-based bank opens the door for it to reclaim its debts, but at a deep discount due to the shakiness of the current bond market in the country, where the cost to insure companies against debt defaults also ticked down this week.

"They're giving a sign that they're not financially distressed by proving they can buy back their bonds and provide liquidity to investors," said Artaud Caloni, an asset manager with Meeschaert Amilton in Paris, according to The Wall Street Journal.

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Highlighting the bank's buyback offer is a cash tender worth $980 million, plus $2 billion for the purchase of the debt securities -- assets that the bank will now hold and collect interest on.

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The lender also confirmed its plans to sell the nearly 19th-century Savoy Hotel in central Zurich, which is undergoing renovations ahead of a 2024 grand reopening.

"The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices," Credit Suisse said in a statement, according to CNBC.

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Earlier in the week, Credit Suisse shares dipped to a record low amid a broader market sell-off as investors grew nervous about the widening number of credit defaults in the banking sector.

Financial data released this week by MSCI Research noted the high volume of credit default swaps, but also predicted the fallout would not approach the scale of what happened in 2008 when lender Lehman Brothers set off America's subprime mortgage crisis. Credit Suisse was also implicated in run-up to the collapse, paying millions in 2016 to settle claims that it misled investors about the residential mortgage-backed securities it sold.

"The market data suggests that a Lehman moment for European banks does not seem likely for the time being," MSCI Research Executive Directors Gergely Szalka and Thomas Verbraken said in a statement.

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Adding to the recent tumult at Credit Suisse, a new CEO has taken the helm following a string of criminal scandals and management mishaps that have led to an overhaul of its operational practices. A strategic review is due in the coming weeks alongside a report on the bank's third-quarter earnings on Oct. 27.

The bank also posted a loss in the second quarter this year, with its finances crimped by government policy changes and the war in Ukraine.

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