(Bloomberg) -- Credit Suisse Group AG is considering the issuance of convertible bonds or preferred shares among options to help pay for its overhaul and strengthen its balance sheet, people familiar with the matter said.

A convertible bond would allow the bank to potentially limit the sale of shares at depressed current prices after the stock lost about half its value this year. The Swiss firm used mandatory convertible notes to raise about $2 billion to mend its balance sheet after the collapse of Archegos Capital Management in 2021.

After years of scandals and multibillion-dollar losses, investors are still seeking clues on what it will cost for Chief Executive Officer Ulrich Koerner to restore confidence in the historic Swiss firm. Analysts have estimated the bank’s capital needs at at least $4 billion and as much as $9 billion over the coming years, though executives are working on asset sales to limit the need to raise money in the market.

A Credit Suisse spokesman declined to comment. The people who described the money-raising options asked not to be identified as talks are private.

Credit Suisse shares fell 2.6% at 11:30 a.m. in Zurich trading, bringing declines this year to 51%.

Asset Sales

The Zurich-based bank is working with Royal Bank of Canada and Morgan Stanley on a potential capital increase, people familiar said earlier this week. Those discussions buttress efforts to dispose of some areas of the business, likely to include large parts of the investment bank, the securitized products unit and potentially asset management in the US. 

The bank has already reached out to key shareholder the Qatar Investment Authority to gauge the sovereign wealth fund’s interest in a potential capital injection, people familiar with the matter said earlier. Other Middle Eastern funds, such as Abu Dhabi’s Mubadala Investment Co. and Saudi Arabia’s Public Investment Fund, are separately weighing whether to put money into Credit Suisse’s investment banking arm or other businesses, the people said. 

Credit Suisse’s current troubles emanate at least in part from the collapse of Archegos, the family office of Bill Hwang, which cost the firm about $5.5 billion. That made it the worst-hit of the Wall Street banks. With analysts questioning the bank’s capital, it issued two series of mandatory convertible notes in the aftermath that translated to 203 million shares. 

The first note was placed with a group of shareholders, including the QIA, and high-net -worth clients. That same group of investors pledged to backstop the issuance of the second note to remaining shareholders to ensure full take up. The two notes converted into shares after 6 months.

Convertible instruments are sometimes used as a means to delay dilution, with issuers counting on a share price rally or recovery to reduce the dilution effect. A lower coupon is accepted by investors because of the conversion rate feature. 

In the convertible note after Archegos, Credit Suisse agreed to pay annual interest equivalent to 3% per annum. The terms also included a discount in the conversion price.

Preferred shares have also been used by banks to attract capital in times of need. During the 2008 crisis, Goldman Sachs Group Inc. tapped Warren Buffett’s Berkshire Hathaway Inc. to invest in preferred stock, offering a 10% annual dividend and warrants. Buffett also made a $5 billion investment in Bank of America in 2011, receiving preferred stock.

--With assistance from Marion Halftermeyer.

(Updates shares in fifth paragraph. A previous version of the story corrected the spelling of Buffett in the final paragraph.)

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