Credit Suisse hires 20 banks for $4 bn capital increase to restructure

Credit Suisse Group AG hired about 20 banks to help with a $4 billion capital increase that will help fund the extensive restructuring unveiled last week and make the Saudi National Bank a new top shareholder.

Investors including the Saudi lender have already committed to contribute about 1.76 billion francs ($1.76 billion), by buying shares at a 6% discount to the average price on Thursday and Friday, Credit Suisse said in a statement Monday. Shareholders still need to approve the issuance of new stock next month.

To help it raise the rest of the 4 billion francs needed, the Swiss bank announced an enlarged syndicate of banks that includes Wall Street names such as Goldman Sachs Group Inc., European lenders such as BNP Paribas SA and Barclays Plc as well as firms in Asia. The announcement confirmed a Bloomberg report over the weekend.

Credit Suisse is tapping shareholders to help fund a restructuring that includes slashing the workforce by 17% and breaking up its investment banking unit. The unveiling of the strategy on Thursday triggered the biggest single-day decline on record, with the shares tumbling 19%, as investors weighed the dilutive impact of the capital increase, the high costs of the plan and the modest return predictions.

The Saudi National Bank, which is expected to hold a 9.9% stake after the capital increase, agreed to buy shares for about 1.17 billion francs, according to the terms published by Credit Suisse. It had committed to invest as much as 1.5 billion francs before the stock slumped on Thursday. Chairman Ammar Al Khudairy ruled out providing additional equity for the moment.

“We like where we are at 9.9%,” he said in an interview on Bloomberg TV. “At this stage we’re not interested in moving from a tactical shareholder into a different category in terms of our relationship with Credit Suisse.”

Credit Suisse’s new Chief Financial Officer Dixit Joshi on Friday held a due diligence call for the capital increase — dubbed as project Ghana — with a group of bankers. On top of the lead banks that it had already announced last week — Morgan Stanley, Royal Bank of Canada, Deutsche Bank AG and Societe Generale SA — Credit Suisse invited a long list of lenders to help with the underwriting of newly issued shares.

At about 20, the number of banks helping with the capital increase is high, given its relatively small size. Participating in rights issues of banks is widely seen as a lucrative mandate for investment banks as they seek to move up in league tables. For financial institutions giving mandates to each other for strategic initiatives such as deals or rights issues is also a tool used to manage relationships.

Financial institutions are intertwined and work together on a daily basis from interbank lending to cash management to bond issuance and custodial services. The risk to signing up to a capital raise is a crash in a company’s share price. If the underwriter doesn’t manage to sell off the shares, they will end up on its own books.

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