This is a first milestone on the long road to a profitable future for Credit Suisse: almost all new shares in CS have found buyers. Thus, the capital increase was successful and the bank had new capital of four billion francs. However, the 98.2 percent participation rate does not mean that all existing shareholders participate with great enthusiasm. On the contrary. “There was a lively trade in subscription rights,” explains Andreas Venditti (50), an analyst at Bank Vontobel. “The calculation worked, especially for hedge funds that were betting on falling prices in CS.”
What happened to short sellers: All the rumors about the bank’s disastrous difficulties circulating in the fall. When the bank later reported the outflow of client funds, the share price fell again—a delight for hedge funds. They were able to buy shares and subscription rights from disillusioned former shareholders and stock CS shares at low cost.
The stock still won’t fall
New CS shares are sought after on the stock market. The price moved significantly from its all-time low of 2.65 francs, topped three francs and closed with an increase of 6.76 percent. However, the stock will not fall because of this. Venditti sees the price target for the CS as 3.50 francs. “To stop the outflow of client funds, the bank has to cover wealthy clients in terms of fees or interest rates,” he says. The problem is: “Once the charges are lowered, it’s extremely difficult to raise them again later.” This is one of the experiences UBS had to make after the financial crisis.
It’s not just money flowing that reduces the bank’s earnings base, it also lowers fees. It is quite possible that CS will continue to tighten the screw on cost during the planned transformation. After all, thanks to the capital increase, the bank now has ample room to process many steps on the way to the new Credit Suisse in terms of capital and liquidity.