Credit Suisse turnaround plan "well underway" after capital hike completed

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By John Revill, Lucy Raitano and Pablo Mayo Cerqueiro

(Reuters) -Credit Suisse got a positive market reaction on Friday after the embattled bank successfully completed the final part of its 4 billion Swiss franc ($4.28 billion) fund raising and said its liquidity levels had been boosted.

Its shares opened 2.5% higher after Switzerland's second biggest bank said cost cuts were well under way, while its liquidity ratios had improved - a concern after outflows of client funds in recent weeks.

Chief Executive Ulrich Koerner hailed the "important strides" made since the bank outlined its turnaround plan on Oct. 27.

"The successful completion of the capital increase is a key milestone for the new Credit Suisse," Koerner said in a statement on Thursday.

"It will allow us to further support our strategic priorities from a position of capital strength and create a simpler, more stable and more focused bank built around client needs, and generating value for shareholders," he added.

Shareholders exercised 98.2% of their subscription rights, giving a boost to managers tasked with getting the bank back on track after the biggest crisis in its 166-year history.

Gross proceeds of rights offering, the second part of Credit Suisse's fund raising, were 2.24 billion francs.

Credit Suisse had already raised 1.8 billion francs by placing stock with a group of institutional investors led by Saudi National Bank, taking the total funds raised to 4 billion francs.

The entire capital raising will raise Credit Suisse's CET1 capital ratio by roughly 140 basis points, it said, to around 14% from 12.6% at the end of the third quarter.

The bank also said it expects to complete the sale of its Securitized Products Group to Apollo Capital Management in the first half of 2023.

The bank has also issued around 5 billion francs of new debt since Oct. 27, which along with the capital hike has strengthened its spot liquidity coverage ratio to above 140%, it added.

"The bank's cost transformation remains well underway," Credit Suisse said, saying plans already launched will reach most of its 2023 goal to save 1.2 billion francs.

"We take a positive view of the fact that the cost reduction initiatives launched will cover around 80% of the 2023 target," said Zuercher Kantonalbank analyst Christian Schmidiger.

Reuters reported on Dec. 1 that the bank was looking for ways to accelerate its cost cuts to tackle weaker revenues.

Analysts were also enthused by the positive response to the rights offering.

"The rights issue is the necessary start to the process, said Jerome Legras of Axiom Alternative Investments.

"But it is only the start of a long and painful journey."

Another fund manager said the capital hike could encourage risk-focussed investors to buy the stock.

"Investors who are willing to take risks will be encouraged to take a chance on the bank," said Stephen Sola, founder of Sola Capital, adding that "management must deliver".

The 4 billion franc package is meant to fund a turnaround and strengthen Credit Suisse as it strives to move on from scandals and heavy losses that prompted speculation about its future and led to large withdrawals by customers. Credit Suisse has been battered by mishaps, including a $5.5 billion loss on U.S. investment firm Archegos. It also had to freeze $10 billion worth of supply chain finance funds linked to insolvent British financier Greensill. At the end of October, Credit Suisse said it planned to cut thousands of jobs and shift its focus away from investment banking and towards less turbulent wealth management.

Vincent Kaufmann, head of Ethos, which represents shareholders holding more than 3% of Credit Suisse stock, said it should now focus on its wealth management and Swiss arm.

"Leadership must focus on restoring the confidence of all stakeholders, not only the shareholders but also and maybe more importantly the clients and the employees of the bank." REVAMP Credit Suisse shares, which have plumbed record lows, were buoyed last week as its leadership sought to reassure markets. After closing above 3 Swiss francs on Monday, they have retreated slightly, gaining 3.2% on Thursday to reach 2.942 francs, and crucially above the deal subscription price.

Despite the rights issue and share placement that made Saudi National Bank an anchor shareholder, key components of Credit Suisse's turnaround plan remain short on detail. Chairman Axel Lehmann this week flagged another loss in 2023 for the bank, while the stock price fall has brought its market value to below 12 billion Swiss francs, roughly the same as that of Swiss private bank Julius Baer.

It also needs to spell out how it plans to spin off its investment bank into a new entity focused on advisory work such as mergers and acquisitions and arranging capital market deals. The bank envisions selling a stake in CS First Boston, but could keep half.

($1 = 0.9335 Swiss francs)