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Thu 19 Jul 2012 10:38 AM

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Gulf-backed Credit Suisse counters critics with $15.6bn capital plan

Bank is selling real estate, asking employees to bonuses into shares as second line of measures

Gulf-backed Credit Suisse counters critics with $15.6bn capital plan
Credit Suisse

Credit Suisse said CHF3.8bn (US$3.9bn) in mandatory convertible bonds would represent an 18 percent dilution when they convert into CHF234m shares in March 2013.

They are being fully underwritten by existing investors such as Qatar and the Olayan Group, as well as new investors like Norway's pension fund Norges and Singapore-based Temasek.

Olayan, the bank's biggest investor with a 6.6 percent stake, has also agreed to bring forward an exchange of CHF1.7bn of hybrid securities into contingent convertible notes (CoCos) originally planned for October 2013.

Olayan said it believes the bank can create "sustained value" despite the challenging environment.

By contrast, Qatar won't bring forward its exchange of CHF4.1bn in hybrid notes, but Dougan said the bank's second-biggest investor was still very supportive.

A sale of 7 percent of fund manager Aberdeen Asset Management announced earlier this month will also bolster capital by CHF200m.

As part of its second line of measures, Credit Suisse is selling real estate, asking employees to exchange future cash bonuses into shares, and offloading illiquid private equity investments.

Dougan also announced an extra CHF1bn of cost cuts after the bank reached a 2013 target of slashing spending by CHF2bn early. Under that plan, the bank had wanted to shed 3,500 positions. Total headcount now stands at 48,200.

The additional cuts, which will result in an extra CHF225m restructuring charge in the second half, will come in nearly equal parts from the investment bank and private bank, but Dougan declined to say how many jobs were involved.

After the SNB suggested the bank cut its dividend to build capital, Credit Suisse said it was planning for a flat all-share payout of CHF0.75 per share compared to the choice it gave investors last year to take the payout in shares or cash.

Dougan said Credit Suisse wants to give shareholders "substantial" payouts after it has bolstered its capital to the key 10 percent level, which it expects in 2013.

Credit Suisse said the various immediate measures would put its capital ratio at 9.4 percent by the year end from 7 percent, according to a Swiss measure which includes new Basel III rules.

The bank announced second-quarter net profit of CHF788m - bringing forward an earnings report that had been due next Thursday. It said it will provide full figures on Tuesday.

Pretax profit at its investment bank slumped to CHF383m from CHF998m the previous quarter as it suffered from a slowdown in trading like other banks. The bank said it took losses on fixed-income inventory positions and described interest rate and foreign exchange trading as "challenging".

But Dougan reiterated a medium-term return-on-equity target of more than 15 percent.

The bank said it won CHF3.4bn in net new private banking assets, taking into account CHF3.4bn in outflows following the merger of boutique subsidiary Clariden Leu, now largely complete. Dougan said Clariden Leu withdrawals ebbed to a low of 200m in June, meaning outflows are stabilizing.

Credit Suisse's private bank is also grappling with raids of its German clients, as European officials crack down on tax evasion as well as a US investigation into offshore accounts at the bank. Switzerland is trying to get the US investigations dropped in exchange for the payment of fines and the transfer of names of thousands more US bank clients.

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