(Dec 5): Credit Suisse Group AG shares rose on the prospect that Saudi Arabian Crown Prince Mohammed bin Salman will take a stake in the Swiss firm’s planned investment bank spin out.
Bin Salman may put about US$500 million into the vehicle, according to people with knowledge of the matter. Other investors may include former Barclays Plc chief executive Bob Diamond’s Atlas Merchant Capital, the people said, asking not to be identified as the deliberations are private. It’s unclear whether the Crown Prince’s interest would come in a personal capacity or through other investment vehicles in the Kingdom.
The Saudi National Bank, 37%-owned by the nation’s sovereign wealth fund, is already an anchor investor in Credit Suisse’s US$4 billion ongoing capital raise. A further investment by the oil-rich nation would boost confidence in the lender’s restructuring efforts. Bank executives have already said several parties are interested to invest in the reprised Credit Suisse First Boston brand under veteran dealmaker Michael Klein.
Credit Suisse declined to comment. Saudi Arabia’s Center for International Communications didn’t immediately respond to request for comment. The Wall Street Journal earlier reported the investment interest.
The Zurich-based bank extended gains from Friday, when comments by Chairman Axel Lehmann helped break a 13-day losing streak. The stock traded up 3% at 3.03 Swiss francs at 2:17 p.m in Zurich, after earlier gaining as much as 7.5%. They’re down about 64% this year.
Credit Suisse has been eager to put to rest concerns about its financial position after more than US$8 billion in losses over the past two years and some recent client defections. Any outside investors in Credit Suisse First Boston would reduce the capital the Swiss bank would have to dedicate to the unit in a years-long process of carving it out. Lehmann said last week that the bank’s liquidity situation had improved and the huge outflows of client assets earlier in the quarter had been stemmed.
Declines of the past weeks had pushed the shares near the level that the Swiss lender is pitching to investors in the capital raise, damaging the offer’s attractiveness to investors.
The First Boston business Klein is taking over will attempt to protect and restore some of the lender’s historically strongest investment banking businesses, such as in mergers and acquisitions and leveraged finance. The Swiss firm’s investment bank division was named Credit Suisse First Boston for almost two decades before it decided in 2005 to retire the name in favour of one moniker for all its businesses.
The potential investment by the Saudi Arabian leader, known as MBS, would be a further demonstration of the strength of Klein’s Middle East ties. His connections in the Kingdom have been a key part of the plans for the investment bank and the capital increase. He was directly involved in helping line up the investment by Saudi National Bank, allowing it to take a stake of as much as 9.9%, according to people with knowledge of the discussions.
Those ties stretch back at least to his Citigroup days, where Klein led negotiations during the financial crisis over a US$7.5 billion capital injection from Abu Dhabi. He also oversaw the Citigroup team that helped Dow Chemical Co get financing from Kuwait Investment Authority.
Credit Suisse announced on Monday that it had also completed the US$5 billion in new debt issuance, part of plans to shore up its balance sheet, and would provide an updated funding plan for 2023 when it releases fourth quarter earnings on Feb 9.
The new shares will begin trading on Dec 9. Credit Suisse needs funds from the rights offering to finance job cuts and the spin out among other elements of its major overhaul.