ZURICH Credit Suisse shares hit a new 20-year low on Wednesday as a board endorsement of American chief executive Brady Dougan's strategy failed to banish investor skepticism that he can meet demands for a stronger capital base.
The Swiss bank is struggling to restore confidence after a rebuke from the Swiss National Bank that it needs to bolster its capital this year and a downgrade of its long-term debt by ratings agency Moody's.
Credit Suisse shares tumbled 10 percent to their lowest level since 1992 after the SNB warning two weeks ago.
They touched another 20-year low of 16.69 Swiss francs ($17.31) on Wednesday before recouping losses to close 0.7 percent higher at 17.14 Swiss francs. The stock lagged behind the European banking index, which closed 2.5 percent higher on the day.
"It's not rational for a shareholder to be bullish on Credit Suisse. It's more rational for a shareholder to wait for more clarity on the situation, which means Credit Suisse does have to issue some form of capital," said Andrew Lim, a banking analyst at Espirito Santo Investment Bank. He rates the stock a sell.
Dougan, an American investment banker, has been in charge since 2007 and says he has no plans to step down, though he has conceded some mistakes. He has said he has no plans to issue new shares, but should be able to improve the bank's capital base by retaining earnings.
The bank's ability to do that is far from certain, however. Many investment banks have suffered what is expected to be a weak second quarter as the euro zone crisis has flared again. Credit Suisse reports half-year results on July 26.
In a statement on Friday, the Credit Suisse board said it was comfortable with the bank's efforts to meet tough new Basel III capital rules and said it was confident about the management's plans to fulfill and exceed those requirements.
Those comments have failed to quell the unease. The NZZ am Sonntag newspaper said that the board was compiling a list of possible successors to Dougan, even though the succession question was not formally on the agenda at last week's board meeting.
"Where is Urs Rohner hiding?" asked a banner headline on the widely-read Swiss banking website Inside Paradeplatz on Wednesday, accusing the bank's chairman of failing to deal with the challenges of building capital and succession planning for Dougan.
While Swiss media criticism of the bank has grown, major shareholders, including the wealthy Olayan family and Qatar's investment fund, have kept mum since the SNB's salvo.
To boost capital, Credit Suisse could bring forward from 2013 the issue of 6 billion Swiss francs ($6.22 billion) of contingent convertible bonds, or CoCos, to the Olayan family and Qatari fund, NZZ am Sonntag reported on Sunday. Credit Suisse declined to comment.
Dougan's other options are to cut the dividend, reduce spending more than planned at 1.2 billion Swiss francs a year or offload riskier assets. In the past, one way Credit Suisse has done this is by putting some of those assets into the bonus program for top bankers.
On Monday, sources told Reuters that up to one third of the most senior European investment banking department staff would be axed - part of 3,500 job cuts announced last year
Several brokerages, including RBC Capital Markets and Morgan Stanley, say they do not expect Credit Suisse to issue new shares to bolster its capital.
"We believe ... a capital raise is a possible last resort, though this cannot be ruled out in light of euro zone risks, earnings risk and SNB remarks," Morgan Stanley analyst Huw van Steenis wrote in a recent note. He rates the stock as equal-weight.
Credit Suisse prides itself on avoiding the government bailout that rival UBS took in 2008, but it has been accused of squandering its savvy handling of the financial crisis.
Its shares have fallen 82 percent since a 2007 high, compared with a 75 percent slide in the European bank index. This year alone, Credit Suisse stock has slid 25 percent.
"When I compare the two big banks, UBS's investment bank has made a clear commitment mainly to serve the private banking arm, where Credit Suisse doesn't seem to have given up its bulge-bracket firm ambitions entirely," Bank Sarasin analyst Rainer Skierka said. He rates both stocks at neutral.
(Editing by Matthew Tostevin and David Goodman)