Credit Suisse Stock Soars, CDS Tightens On Debt Buyback News

Credit Suisse stock is extending this week’s 30% plus rebound off Monday morning lows following news that the embattled bank offered to buy back up to $3 billion of its own debt, in a move aimed at calming investor jitters ahead of the unveiling of a crucial strategy revamp.

The offer includes euro and pound sterling debt securities worth up to 1 billion euros ($980 million) and a separate offer for US dollar securities up to $2 billion.

CS is up over 5% in the pre-market, well off its record lows from Monday…

The move is being seen as a sign of confidence in the bank’s balance sheet but we also note it’s buying these bonds back at a significant discount. For example, Credit Suisse will pay less than 96 cents on the euro to buy a 750-million euro FRN that was indicated above face value last Friday

“The transactions are consistent with our proactive approach to managing our overall liability composition and optimizing interest expense and allow us to take advantage of market conditions to repurchase debt at attractive prices,” Credit Suisse said in the statement.

As Bloomberg reports, the debt buyback echoes a $5.4 billion offer made by Deutsche Bank AG in 2016 as markets pummeled the German lender, though the calming effect was short-lived.

The debt repurchase plan is “a smart move, it builds confidence in the liquidity of the balance sheet and helps lower Credit Suisse’s funding costs,” said Filippo Maria Alloatti, head of financials credit at Federated Hermes Ltd. in London.

Notably, credit rating agency S&P affirmed Credit Suisse’s long-term rating at BBB Thursday, adding that the outlook remains negative amid continued uncertainties around its upcoming strategic review and targeted operating model.

“The bond buyback is Credit Suisse’s way of muddling through the current situation as they hope to bring down its CDS spreads before they tap the bond market again to raise capital,” said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis SA.

“Credit Suisse may also have picked the right time as the current market also happens to be one of the few windows this year for companies to raise bonds in the public market.”

The move has improved credit sentiment also, but as we show below, the credit and equity markets remain decoupled…

Does the buyback news mean no reassuring letter from the CEO this weekend?