Teaching Plan | HBS Case Collection | May 2013

High Wire Act: Credit Suisse and Contingent Capital

by Clayton Rose and David Lane

Abstract

Late in 2010, Credit Suisse CEO Brady Dougan and his team considered whether or not to issue contingent capital, which Swiss regulators would require by 2019. They faced a number of substantial issues, including: Would contingent capital actually work as conceptualized and provide sufficient loss absorption when called upon? Would it be cost effective? Would there be sufficient demand for this new instrument? What were the risks to Credit Suisse's reputation with clients and regulators if an issue did not go well? In addition, The Basel Committee, the body that recommended global bank capital adequacy standards, had decided that much existing bank "hybrid debt" would no longer count as capital for regulatory purposes, meaning that Credit Suisse and other banks would need to replace this portion of their equity accounts with some other form of capital. However, the Basel Committee had yet to decide whether contingent capital would count as capital in the new "Basel III" regulatory regime.

Keywords: Financial Institutions; Capital Markets; Financial Crisis; Decision Choices and Conditions; Leadership; International Finance; Financial Liquidity; Risk and Uncertainty; Competitive Strategy; Financial Services Industry; Switzerland;

Citation:

Rose, Clayton, and David Lane. "High Wire Act: Credit Suisse and Contingent Capital." Harvard Business School Teaching Plan 313-048, May 2013.