CS dodges volatility while seizing opportunities

Planning for volatile markets has paid off for Credit Suisse, which has used windows of opportunity to raise 90% of its needs for the year already, writes Katie Llanos-Small.

  • 20 Sep 2010
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Credit Suisse gained membership of an exclusive club on July 29. Selling a $1.5bn perpetual security, the bank joined a handful of financial institutions around the world to raise tier one capital in the fixed income markets this year.

Most others were confounded by uncertainty over how core tier one capital will be defined in the future. But Credit Suisse refused to let these concerns — set off by a Basel Committee paper in December 2009 — hold it back from raising capital through the bond market.

The bank’s approach to this $1.5bn capital raising is indicative of how it behaves more generally when it comes to borrowing. It is a carpe diem style: keeping an eye on markets and snapping up opportunities when they are available, without being swayed by wider trends — or fears — among peers.

"There are so many open questions on regulations, so little clarity," says Rolf Enderli, global treasurer at Credit Suisse in reference to future rules on bank capital. "But you can’t just do nothing until the final decision comes."

Because regulators had not clarified whether capital raised would still be valid once new rules, Basel III, come in, in July the bank structured a perpetual security that qualified as tier one under current rules.

"The transaction is optimising our capital under Basel II," says Enderli. "We don’t know what it will look like under Basel III. For us the deal was a pure Basel II transaction."

The security can be called if changes in banking regulations mean it is no longer eligible to count towards the bank’s core capital.

Seizing the opportunity

Credit Suisse recognised that demand was there for such a deal, and picked its moment carefully. Just days earlier, the Basel Committee had indicated Basel III rules were unlikely to be implemented earlier than 2018. The announcement lifted spirits across the bank finance market, and propelled tightening already started by the CEBS stress test results the week before.

Retail investors in Europe and Asia fell over themselves to place orders for the deal which offered a 7.875% yield: order books closed with over $8bn in demand.

A FIG syndicate banker in London said the bank’s strong retail name recognition would have helped the deal, while a credit analyst at a leading investment house in London said the bank communicated well with potential investors.

"As you’d expect of a bank of their size, they have good investor relations and outreach programmes," he said.

Both described the bank as a realistic borrower which is good at tapping the market.

Indeed, Credit Suisse’s opportunistic approach to tier one is reflected in its attitude to raising senior funds.

"We will be very selective on accessing funding markets," says Sharon O’Connor, head of global long term funding at Credit Suisse, adding the bank has funded 90% of its needs for 2010. "If there’s demand and we like the levels, we’ll probably look at adding a couple of billion more between now and the end of the year and continue to diversify our investor base."

Assuming volatility

Credit Suisse takes a defensive view on the markets. It started 2010 expecting them to be choppy, and funded accordingly: doing some pre-funding in 2009 and not hesitating to tap markets as soon as conditions were suitable. The bank expects little change for the foreseeable future, says Enderli.

"At the beginning of this year, we were expecting difficult markets, so our strategy was to use any market window that showed itself," he says. "We assume there will continue to be quite a lot of volatility in the market.

Broad investor base

"One week the markets are open and you have access for two or three weeks before the market becomes more difficult. It’s important that you are ready with your debt capital markets teams and have a clear strategy when the markets are improving again. You don’t get several months to act, like in the past."

Funding in different markets and maintaining a broad investor base is a priority for Credit Suisse, says Enderli. That means the bank has focussed on factors other than price at times during the crisis.

"We’ve tried to be regularly in the market," says Enderli. "We’re not always chasing the best price because, if you’re always in the market, you look at the overall cost of funds. You don’t always try to target the tightest pricing. It’s important for us to establish benchmark transactions in major markets, and it’s important to provide liquidity in these bonds for investors."

Aside from the dollar and euro markets, Swiss franc, Japanese yen and Australian dollar markets are also popular with Credit Suisse. The bank continues to broaden its horizons, and has recently set up a Canadian dollar programme and is pondering tapping the Brazilian real market.

Enderli describes covered bonds as an area where the bank has room to grow. The bank plans to issue its debut Swiss covered bond by early 2011. It may also issue lower tier two debt before the year is out, he says.

  • 20 Sep 2010

Bookrunners of Global Covered Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 UBS 11,121.93 68 5.93%
2 HSBC 10,710.61 60 5.71%
3 BNP Paribas 9,831.12 47 5.24%
4 Credit Agricole CIB 9,404.76 44 5.02%
5 Commerzbank Group 9,001.98 53 4.80%

Bookrunners of Global FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 83,632.79 365 6.90%
2 Citi 78,369.17 439 6.46%
3 Morgan Stanley 71,293.89 310 5.88%
4 Goldman Sachs 68,728.80 354 5.67%
5 Bank of America Merrill Lynch 67,654.98 332 5.58%

Bookrunners of Dollar Denominated FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 JPMorgan 63,581.57 256 10.75%
2 Citi 59,939.53 336 10.13%
3 Bank of America Merrill Lynch 50,999.42 275 8.62%
4 Morgan Stanley 47,227.84 232 7.98%
5 Goldman Sachs 44,763.52 269 7.57%

Bookrunners of Euro Denominated Covered Bond Above €500m

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 Credit Agricole CIB 8,094.29 29 8.24%
2 BNP Paribas 7,155.53 27 7.28%
3 UBS 6,612.03 23 6.73%
4 LBBW 5,728.28 22 5.83%
5 Commerzbank Group 5,651.39 24 5.75%

Global FIG Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 Morgan Stanley 365.83 497 7.62%
2 JPMorgan 332.66 618 6.92%
3 Bank of America Merrill Lynch 299.89 590 6.24%
4 Goldman Sachs 276.71 375 5.76%
5 Citi 264.54 592 5.51%

Bookrunners of European Subordinated FIG

Rank Lead Manager Amount €m No of issues Share %
  • Last updated
  • 18 Oct 2016
1 BNP Paribas 6,493.74 22 9.59%
2 UBS 6,355.46 25 9.39%
3 HSBC 6,275.95 20 9.27%
4 Barclays 5,430.32 15 8.02%
5 Citi 4,577.05 23 6.76%