Credit Suisse (NYSE:CS) said on Monday that it had launched an offer to buy back 4 billion Swiss francs ($4.4 billion) worth of its own debt. The bank, Switzerland’s second-largest by assets, would over time replace that debt with instruments that qualify as capital under more stringent banking rules.
The bank said it was using its “strong liquidity and capital position” to launch a tender offer to buy back some of its public Tier 1 and Tier 2 instruments, a move the Credit Suisse spokesman Marc Dosch said will help the bank make an early transition to proposed Swiss and Basel III capital requirements. “Existing instruments will be replaced over time with instruments that count under Basel III,” said Dosch.
Credit Suisse CFO David Mathers said, “This is another important step for Credit Suisse and its investors in transitioning to the new regulatory regime,” adding that the bank “continues to take a proactive approach to satisfy the new capital requirements, aimed at transitioning its capital structure well in advance of the required implementation dates.”
After Switzerland’s largest bank, UBS AG (NYSE:UBS), took state aid in 2008 following huge write-downs on U.S. subprime debt, the Swiss government introduced new capital standards under which regulators demand more capital than the international norm for banks. The so-called “Swiss Finish” requires UBS and Credit Suisse to hold more than 10 percent in common equity Tier 1 capital, compared with 7 percent under the Basel III industry rules.
The law, which is expected to come into effect next January, will also require the banks to hold a further 9 percent in other forms of capital, such as hybrid debt instruments known as contingent convertibles, or CoCos, that convert into equity, lifting the total capital ratio to 19 percent in the event banks find themselves nearing trouble. Credit Suisse has already issued 6 billion francs of CoCos to existing shareholders and a further 2 billion francs of CoCos publicly.
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