Equity capital markets bankers are preparing to pitch for a role in a capital raise for Credit Suisse [SWX:CSGN], with high expectations that the stricken bank will now need a fresh injection of equity capital, three sources told this news service.

The CHF 9.7bn market cap bank saw its shares slide 7.7% today (3 October) as of 1.15pm BST, after a spike in its credit default swaps led to speculation over the weekend that the lender might be in distress.

Credit Suisse’s CEO Ulrich Koerner moved quickly to calm markets saying the bank was well capitalised and had plenty of liquidity. The lender has its 3Q22 earnings call on 27 October, at which point it is expected to reveal its next step.

Despite the bank’s confidence in its financial position, all three sources said there are now live internal discussions among top banks on the continent about securing roles in a deal suspected to come sooner rather than later. Credit Suisse would likely lead its own rights issue, should it go ahead and raise capital, but would be joined in the syndicate by banks with which it has a strong relationship, one of the sources said.

On the bank’s last CHF 4.2bn (EUR 4.35bn) rights issue in 2017, Deutsche Bank and Morgan Stanley held senior underwriting roles alongside CS, according to Dealogic data; on another CHF 4.7bn rights issue in 2015, Citi and HSBC held key underwriting roles alongside Credit Suisse.

BBVA, Bank of America, BNP Paribas, Commerzbank, Deutsche Bank, Goldman Sachs, ING, Intesa Sanpaolo, Natixis, RBC, Santander and UniCredit have also all held roles in previous rights issues for Credit Suisse.

Last year, the bank also raised CHF 1.75bn through the placement of mandatory convertible bonds. Citi acted as a bookrunner on Credit Suisse’s recent medium-term note on 23 August, according to Dealogic.

All sources speaking to this news service said that the bank’s equity story presented at its upcoming strategy reveal day will be crucial in securing enough buy-in to make a capital injection possible.

“The situation is clearly accelerating,” said another source, adding that while there are still many areas of the bank which remain strong, the regression in its share price and pressure on its earnings had put it under severe strain in the eyes of the market.

At CHF 3.67 apiece, shares are trading close to their 52-week low, declining steadily since their 52-week high of CHF 10.2 in November 2021.    

While a deal is being seen as more likely, it is not a certainty, with the same source adding that there have been informal conversations around a Credit Suisse rights issue at least twice in the recent past, but that the bank failed to ultimately launch a deal. “There is still a lot of scepticism around whether it will actually pull the trigger this time,” he added.

Capital rules require lenders to hold a certain amount of equity capital relative to their risk-weighted assets (RWAs), such as mortgages and business loans. Bank restructurings sometimes come alongside an equity raise to prevent assets write-downs on their balance sheet from eroding capital buffers.

Credit Suisse’s Common Equity Tier 1 ratio – a core measure of banks’ financial strength – stood at 13.5% at the end of 2Q22.This was below rival UBS’s [SWX:UBSG] 14.2%, but above the likes of Deutsche Bank [ETR:DBK] at 13%.

Credit Suisse declined to comment.