What banks can learn from Credit Suisse’s $4B capital raising plans

The news: Credit Suisse has reportedly secured CHF1.76 billion ($1.93 billion) to fund an extensive restructuring that includes carving up its investment banking business, according to Bloomberg.

• The investments will be underwritten by around 20 banks including the Saudi National Bank, Goldman Sachs, and Deutsche Bank.
• Credit Suisse is seeking to raise around $4 billion in total.

How we got here: Credit Suisse has been rocked by negative headlines in recent months.

• Alarm bells sounded for the bank’s shareholders in September when it was forced to reassure staff and investors of its financial health.
• Disappointing Q3 earnings results, in which it posted a net loss of CHF4.03 billion ($4.41 billion), did little to improve confidence.
• It's not been helped by a poor investment banking performance and litigation costs linked to numerous scandals including laundering drug money and failures in employee message record-keeping.
• In response, Credit Suisse outlined a major restructure that includes splitting with its investment bank, raising billions in capital, winding down less profitable business units, and cutting around 9,000 staff.

What this means: Credit Suisse’s restructure and fundraising provides insights into the status and health of the global banking sector.

1. Banks can raise funds, but it’ll get harder. Credit Suisse’s success in getting the backing of investors will be comforting to other lenders who may similarly find themselves looking to attract capital. But rising interest rates and a darkening economic climate mean lending terms will almost certainly get worse and investors may be more concerned with holding on to capital to safeguard against downturns.
2. Scandals can be tough to shake. Banks should be wary of the long-term reputational and legal costs tied to regulatory missteps. The repeated scandals that Credit Suisse has been involved in have dented its already bad financial performance and contributed to the need for a hugely expensive restructure.
3. Investment banking’s outlook is bleak and more change could be coming. Wall Street investment banks had a tough Q3 and Credit Suisse’s unit has been doing so badly that it will be carved out from the rest of the business. Expect more of this to follow as M&A activity and IPOs remain quiet amid low confidence in the economy.