To restructure, Credit Suisse recruits 20 banks for a $4 billion capital increase

To assist with a $4 billion capital increase that will help fund the extensive restructuring announced last week and make the Saudi National Bank a new top shareholder, Credit Suisse Group AG hired about 20 banks.

According to a statement released by Credit Suisse on Monday, investors, including the Saudi lender, have already committed to contributing about 1.76 billion Swiss francs ($1.76 billion) by purchasing shares at a 6% discount to the average price on Thursday and Friday. The issuance of new stock is still subject to shareholder approval next month.

The Swiss bank announced an expanded bank syndicate that includes Wall Street heavyweights like Goldman Sachs Group Inc., European lenders like BNP Paribas SA and Barclays Plc, as well as companies in Asia, to help it raise the remaining 4 billion francs required.

In order to finance a restructuring that includes a 17% workforce reduction and the division of its investment banking unit, Credit Suisse is turning to its shareholders. As investors considered the capital increase's dilutive effect, the high costs of the plan, and the modest return projections, the strategy's release on Thursday led to the biggest one-day decline in shares ever. The shares fell 19%.

The Saudi National Bank, which is expected to hold a 9.9% stake after the capital increase, agreed to buy shares for about 1.17 billion francs, according to the terms published by Credit Suisse. It had committed to invest as much as 1.5 billion francs before the stock slumped on Thursday. Chairman Ammar Al Khudairy ruled out providing additional equity for the moment.

“We like where we are at 9.9%,” he said in an interview on Bloomberg TV. “At this stage we’re not interested in moving from a tactical shareholder into a different category in terms of our relationship with Credit Suisse.”

Credit Suisse’s new Chief Financial Officer Dixit Joshi on Friday held a due diligence call for the capital increase -- dubbed as project Ghana -- with a group of bankers. On top of the lead banks that it had already announced last week -- Morgan Stanley, Royal Bank of Canada, Deutsche Bank AG and Societe Generale SA -- Credit Suisse invited a long list of lenders to help with the underwriting of newly issued shares.

At about 20, the number of banks helping with the capital increase is high, given its relatively small size. Participating in rights issues of banks is widely seen as a lucrative mandate for investment banks as they seek to move up in league tables. For financial institutions giving mandates to each other for strategic initiatives such as deals or rights issues is also a tool used to manage relationships.

Financial institutions are intertwined and work together on a daily basis from interbank lending to cash management to bond issuance and custodial services. The risk to signing up to a capital raise is a crash in a company’s share price. If the underwriter doesn’t manage to sell off the shares, they will end up on its own books.