Credit Suisse has ditched plans to raise money by listing part of its Swiss business and will instead sell new shares worth about 4 billion Swiss francs ($4 billion) to get its financial strength back on a par with rivals.
Switzerland's second-biggest bank, which is recovering from back-to-back annual losses as it restructures under Chief Executive Tidjane Thiam, said the decision should remove any lingering concerns about its capital strength.
"It's the right move, even if I would have preferred it not to be necessary," said Thomas Braun, fund manager at Classic Fund Management, a top 30 Credit Suisse shareholder.
The 4 billion franc rights issue follows a 6 billion franc cash call in late 2015 and asset sales that raised about 1 billion francs in capital. It will be the last leg of Credit Suisse's plans to raise the 9-11 billion francs Thiam said it needed when he announced his revamp in October 2015.
"Is there something on top of that? The short answer is 'no'," Thiam, who became CEO in July 2015, told reporters.
The cash call follows similar capital increases by German rival Deutsche Bank <DBKGn.DE> and Italy's UniCredit <CRDI.MI> this year and should benefit from a rally in bank stocks after polls showed French far-right candidate Marine Le Pen would lose a presidential run-off on May 7.
Reuters reported last month that Credit Suisse was considering a share sale rather than an initial public offering (IPO) of its Swiss banking division and was set to make a decision in April.
Scrapping the IPO means Credit Suisse will not have to sacrifice some of the profits from one of its most lucrative divisions and will avoid the operational complexities of having a separate listed entity within a global bank.
"I'm glad they're not selling the Swiss bank as that would have weakened the overall business and raising equity is simpler and cleaner," said David Hussey, fund manager at top 60 Credit Suisse investor Manulife Asset Management.
Credit Suisse has lost 5.65 billion francs since 2015 as Thiam focuses on expanding its wealth management business while shrinking its investment bank, a shift the Swiss bank expects will lead to more than 10,000 job losses.
The bank's management is also fighting an investor protest over high executive pay that is set to come to a head at its annual meeting on Friday while the Netherlands is leading an investigation into alleged tax evasion and money laundering involving the bank.
Still, clarity on its plans for raising capital, as well as better than expected first-quarter numbers, pushed shares in Credit Suisse up as much as 3.7 percent to their highest since March 3. The shares were trading 1.9 percent higher at 1135 GMT.
"This set of numbers and, much more importantly, the removal of capital uncertainty make the shares ready for a relief rally," wrote Kepler Cheuvreux analyst Peter Casanova, who rates Credit Suisse's stock "buy".
The bank reported net profit of 596 million francs for the first three months of 2017, its highest quarterly profit since Thiam launched his sweeping restructuring and ahead of even the highest estimate in a Reuters poll of analysts.
"Wealth management as well as investment banking trends give us reason to be optimistic," said Andreas Brun, banking analyst at Mirabaud Securities LLP.
However, Credit Suisse cautioned that the outcome for the second quarter "will be dependent on political developments that are hard to predict at this stage".
LAST CAPITAL INCREASE?
Credit Suisse expects to have a common equity Tier 1 (CET1) ratio, a closely watched measure of balance sheet strength, of approximately 13.4 percent and a tier 1 leverage ratio of about 5.1 percent following the 4 billion franc capital increase.
By comparison, Deutsche Bank expects to achieve a CET1 ratio of 14 percent through its cash call and Swiss rival UBS <UBSG.S> is just shy of 14 percent.
While some analysts reckoned the debate about the bank's capital position had finally been put to rest others remained concerned it might not be the last cash call.
"How can a bank as big as CS be so volatile in terms of its earnings and unpredictable as to how much capital it needs? They are being forced to adjust quarter by quarter," said Chirantan Barua, an analyst with Bernstein. "This may not be the last capital raise."
The bank will hold an extraordinary general meeting on May 18 for shareholders to vote on the capital increase.
Thiam said the full benefits of his restructuring would feed through to investors after next year.
"Nobody is more eager than me to get to 2018 because then we start seeing in 2019 what this bank can deliver."
(Additional reporting by Oliver Hirt and Angelika Gruber in Zurich and Danilo Masoni in Milan; writing by John O'Donnell and Joshua Franklin; editing by Keith Weir and David Clarke)