As someone who’s driven in the Beijing to Paris rally in a vintage Porsche, Ulrich Koerner knows all about staying the course. But the new boss of Credit Suisse Group AG seems to have had enough of the Swiss giant’s investment bank.
The gloves are finally off in Zurich. After years of past chief executive officers tinkering at the edges of a misfiring machine that lost $1 billion in the first six months of 2022, bankers now fear a torching of much of the division. Credit Suisse’s decades of dueling with the titans of Wall Street for a place among the bulge-bracket investment bank elite are potentially over.
Conversations with about a dozen Credit Suisse dealmakers, traders, financiers and wealth advisers, who asked to remain anonymous, depict an investment bank braced for a reckoning. As much as two-thirds of the unit could eventually be on the block in the most extreme case, senior figures say. From now on Koerner and Chairman Axel Lehmann want the firm to be an asset gatherer for the world’s rich, and a Swiss bank serving the nation’s corporate champions.
One possibility is that the investment bank ceases to exist as a separate division at some stage, other insiders say, with the remnant parts needed for asset and wealth management and the Swiss bank folded into those units. More than 30 years after the takeover of First Boston gave Credit Suisse real Wall Street clout, that would signal a historic retreat.
In the early 2010s Credit Suisse at one point ranked as a top-five global investment bank, according to Bloomberg Intelligence data, as it took on the likes of Goldman Sachs Group Inc. and JPMorgan Chase & Co. Its disastrous backing of Archegos Capital Management and Greensill Capital, two finance firms that blew up spectacularly last year, ended most ambitions to that status.
Only the M&A advisory team that traces its roots back to that First Boston deal looks relatively secure, leaving question marks over fixed-income trading, leveraged finance and debt capital markets, as well as equity capital markets. Equities-trading revenues have all but disappeared after the bank’s exit last year from prime broking, which finances hedge funds. The securitized-products unit, which trades bundled home and consumer loans, is seeking partners, aided by bankers from Centerview.
At a recent town hall meeting for Credit Suisse’s global investment bank hosted by David Miller, head of banking, management said it wanted a team that was capital light and advisory focused, according to people present.
“There comes a point where you either have a large investment bank with which you can compete against the big players, or you’re just too small and therefore it’s best to exit,” says Vincent Kaufmann of Ethos Foundation, which represents 3%-5% of Credit Suisse’s voting rights. It’s a view echoed by the biggest shareholder: “At some point they either have to fix it or look for other options,” David Herro of Harris Associates told Bloomberg TV on Friday.
A Credit Suisse spokesman says: “We’ll update on progress on our comprehensive strategy review when we announce our third-quarter earnings; any reporting on potential outcomes before then is entirely speculative.”
Hard Task
The hardest challenge for Koerner and Lehmann will be making exits or winding down businesses without racking up ruinous costs or seriously damaging the company through lost revenue. While activities such as securitized debt trading are volatile and eat up lots of capital, they can deliver monster profit. Finding partners or buyers for these units in current markets will be tough, too.
The Swiss duo will also need to successfully navigate any boardroom disagreements with defenders of the investment bank. Backing from their national authorities may help them, people familiar with the matter say.
“The bank really needs to gain stability and clients’ trust,” says Kaufmann. “They disclosed this new strategy but what remains to be seen is its implementation.”