Credit Suisse’s Fuzzy Apollo Deal Better Than None

Entrepreneur, Idea, Competence, Vision, Target

Image Source: Pixabay

Credit Suisse updated investors on its efforts to offload a chunk of its investment bank on Tuesday, even though it didn’t have much to say. Yet one word in an otherwise fuzzy statement – “premium” – shows that the whole exercise was probably worthwhile for Chief Executive Ulrich Körner.

The $12 billion Swiss bank said that it was offloading about $55 billion of assets in its securitized products unit, chiefly to Apollo Global Management, as part of a wider plan to shrink the bits of investment banking that won't help its core wealth business. But it remained silent on key financial details, including the price. The U.S. buyer, which already has about $523 billion of client money, will also manage the remaining $20 billion of Credit Suisse’s packaged loans and mortgages, in return for a fee.

That deal structure will be a disappointment for any shareholders who were hoping for a quick, clean exit from the highly profitable division, which also structures credit-card receivables and other funky debt products. The Apollo deal and other smaller transactions will only reduce Credit Suisse’s risk-weighted assets by roughly $10 billion by mid-2023, which is less than half of the $22 billion that Körner said was sitting in the unit at the end of September. The rest will have to be wound down over time – and probably very slowly: Apollo’s asset-management arrangement will run for five years.

But there are also good reasons for the vagueness. Some of the underlying borrowers, for example, have to consent to the change of ownership, one person familiar with the matter told Breakingviews. And it’s possible that debtors could repay early. Both of those dynamics mean the amounts are a moving target. Credit Suisse also said that the final sale price will depend on discount rates. This suggests that it and Apollo could update the terms based on prevailing interest rates when they are ready to close the deal.

Still, investors already have the most important detail. Credit Suisse said in its statement the expected boost to its capital levels will depend on the premium that Apollo pays, which implies that selling at a discount is out of the question. Since Körner is selling from a position of weakness amid dicey markets, that represents a win for shareholders. Even a fuzzy deal is better than none.

More By This Author:

Q3 2022 U.S. Retail Scorecard – Update
STOXX 600 Earnings Outlook 22Q3 - Tuesday, Nov. 15
Investors Put Risk On During the Flows Week, Padding The Coffers Of Emerging Markets Equity ETFs And High Yield ETFs

All names and marks owned by Thomson Reuters, including "Thomson", "Reuters" and the Kinesis logo are used under license from Thomson Reuters and its affiliated companies.

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.