Previously the bank made lots of profit from Chinese companies listing in the US, such as Alibaba’s $25 billion initial public offering, but geopolitics has killed that off. Credit Suisse was also the go-to adviser for special-purpose acquisition companies (SPACs) but that craze is over too. It’s one of the biggest providers of leveraged finance to private equity firms, another industry that’s struggled recently. Russia was an important growth market for the Swiss lender, before Vladimir Putin’s bloody assault on Ukraine.
Ironically, the prime-broking unit that was shut after the Archegos debacle may have been a bright spot this year as hedge funds are doing well. “The bank has a mix of bad strategy, bad executives, and bad luck,” says Bris.
“Credit Suisse still has the same three key issues: Revenues are trending down, costs are trending up, capital is below target with capital generation at risk from low underlying profitability and incremental litigation costs,” Flora Bocahut at Jefferies wrote in a research note this month. “The outlook remains particularly dark for CS in a challenging backdrop for the industry.”
For the bank’s new top brass, the answer is to cut costs to 15.5 billion francs ($16.2 billion) in the medium term, well below Gottstein’s target of 16.5 billion-17 billion francs. And they want to shred the bits of the investment bank that gobble up capital. Herro estimates that the stock price ascribes a negative value of roughly $10 billion-$15 billion to the division. A special board committee, led by longtime Citigroup Inc. banker Michael Klein, is overseeing the cull. Unit chief Christian Meissner is helping, though he’s expected to depart once it’s done.
Rival banks offer potential blueprints. Deutsche Bank retreated from equities during its own dark days; UBS merged its equity capital markets and debt capital markets teams as it doubled down on wealth management.
Former Glory
Credit Suisse’s desire to keep a competitive global advisory business appears feasible given that it’s had a role on most big-ticket M&A this year, including Broadcom Inc.’s $61 billion purchase of VMware Inc. But swaths of talented dealmakers have jumped ship, and their replacements’ quality is unproven.
One senior investment banker says the division is split between people polishing CVs and others dreaming of a return to the glory days of Credit Suisse First Boston, when the deals team was in its pomp. Some wealth managers dispute the idea that their billionaire clients are a good source of work for the bank’s dealmakers, arguing that they still prefer Goldman Sachs and JPMorgan for the big stuff.
One deal that doesn’t look imminent is a Credit Suisse takeover — even if bankers are pitching it — though sales or spinoffs could be considered for any parts of the investment bank that retain value. Insiders reckon the Swiss authorities want to give Koerner and Lehmann time to deliver their national solution of a Swiss bank, plus wealth and asset management. Regulators want an orderly restructuring that doesn’t jeopardize the country’s no. 2 lender.
“For Credit Suisse, it’s like a football team,” says Bris. “It depends on the loyalty of the players. If it can depend on people doing a good job at lower pay, then it has a chance. Otherwise I’m worried.”
--With assistance from Gillian Tan, Ambereen Choudhury, Jan-Henrik Foerster and Katherine Griffiths.
This article was provided by Bloomberg News.