credit suisse announced Tuesday that it will accelerate the restructuring of its investment bank by selling a significant portion of its securitized products group (SPG) to Apollo Global Management.
The deal, along with possible sales of other assets to third-party investors, is expected to reduce SPG’s assets from about $75 billion to $20 billion, Credit Suisse said.
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The bank said the move represented “an important step towards a managed exit from the securitized product business, which is expected to significantly de-risk the investment bank and free up capital to invest in Credit Suisse’s core business.”
Credit Suisse announced a massive strategic overhaul in late October, alongside a huge quarterly loss, after it struggled with sluggish investment banking revenue and litigation costs related to a series of legacy compliance and risk management failures fight.
The centerpiece of the restructuring plan is the divestiture of risk-weighted assets (RWA), about $10 billion of which came from Tuesday’s deal, the bank said.
“The remaining assets of approximately $20 billion, which will generate income to support the exit of the SPG business, will be managed by Apollo under an investment management relationship with an expected five-year term to be entered into upon first closing,” Credit Suisse added in a statement road.
“Under the terms of the proposed transaction with Apollo, Credit Suisse’s CET1 capital ratio is expected to be enhanced by the release of RWA and the recognition at closing of the premium paid by Apollo, the final amount of which will depend on the discount rate and other transaction-related factors. “
SPG is a significant player in the U.S. public securitization market, particularly in residential mortgage-backed securities.
Credit Suisse will hold an extraordinary general meeting next week to seek shareholder approval on several key elements of the restructuring. These include plans to invest 1.5 billion Swiss francs ($1.6 billion) from the National Bank of Saudi Arabia in exchange for a 9.9 percent stake, as part of a 4 billion Swiss franc capital raise.
This is a developing news story and will be updated shortly.