Credit Suisse soon breaks its silence: On Thursday, October 27, CS management will present its restructuring plans for the ailing large bank. The bank had prepared the terms for this in July – at the same time that the CEO moved from Thomas Gottstein (58) to Ulrich Körner (59).
Credit Suisse must therefore become a “more focused, more agile group”. First of all, this also means that the cost base will be reduced by more than CHF 1 billion. Wealth management and Swiss business will be strengthened, while the investment bank will be downsized.
Since then, the rumor mill has been heating up and the bank has been absolutely quiet. Rumors about the bank’s capitalization are of particular concern. It’s been dark red for a few quarters. Extensive restructuring will require high restructuring costs.
Investment Bank clipped its wings
US analysts have reached a capital requirement of the big bank that could be between 4 billion and 9 billion francs in the coming years. Therefore, rumors of a possible capital increase circulated one after another. Given the falling share price – temporarily only 3.52 francs – CS management should avoid raising capital as much as possible. Because it dilutes the value of the stock and costs shareholders even more money.
Instead, the CS leadership is likely aiming to raise the funds needed for transformation through the sale of investments. Among other things, the sale of parts of the Investment Bank (IB) is also discussed. It is also the focus of restructuring as it is considered volatile and low returns compared to the competition. When Archegos collapsed, CS had lost 5 billion francs for 2021. Analysts say the big bank must now deliver a far-reaching restructuring of the unit: It’s the sixth attempt since 2011, after all.
CS management has already announced that the IB “Securitized Products” division has been partially or completely sold. Credit Suisse has a strong position in the securitization business of receivables such as mortgage loans or credit card debt: It is considered profitable, but it is also capital-intensive. According to Goldman Sachs analysts, CS could increase CHF 1.5 billion to CHF 1.8 billion if the business is sold out completely.
There has also been speculation about the sale of other IB subdivisions, including the capital-intensive leveraged finance business. The business, with debt-financed corporate takeovers, has resulted in high losses in the current year so far. According to Bloomberg, CS could leave its “leveraged finance” business to a sort of “investment bank boutique”, along with parts of its consulting business. A name with a revived “First Boston” brand would also be available.
Will there be major layoffs?
However, the targeted cost cuts are likely to affect other areas of the big bank’s business as well. For example, Credit Suisse may withdraw from other countries in its wealth management business – for example, the media reported about a possible sale of its Latin American business, excluding Brazil.
It seems clear that large-scale restructuring will not succeed without layoffs. There is wild speculation in the media about thousands of jobs at stake. However, it’s doubtful exactly where things will cut and whether CS’ local business will also be affected by the revamped productivity programs. However, the Swiss bank is considered the “earning pearl” of the group. “We are not at the top of the priority list for adjustments,” CS Switzerland boss André Helfenstein (55) said in an interview in September.
Also, rumors have been circulating for weeks about possible sales of businesses and stocks that could serve to strengthen the capital base. CS approves the sale of Zurich luxury hotel Savoy. CS consumer credit bank “Bank Now” or American Express-operated credit card business Swisscard may also be “silver,” according to media reports. CS’ shares in the Spanish fund platform “Allfunds” may also be sold.
However, the consistently falling share price seems to indicate that shareholders are still not rejecting a capital raise and hence a dilution of their shares.
It is now up to the big bank to convince investors that they can return to profitability as quickly as possible with their new strategy and without major capital measures. After all, the CS share price has recently recovered from its absolute lows – but with a good market cap of 12 billion francs, the big bank remains a shadow of itself. (SDA/sfa)