The latest restructuring at Credit Suisse includes a SFr4bn ($4.05bn) capital raising and a redoubled focus on wealth management.
Potential clients are entitled to ask this: how well will you manage my wealth when you have stewarded your own assets so badly?
Many banks boast of building a wealth management franchise. Few have done so globally. Think of Morgan Stanley and UBS, which reallocated capital away from their investment banks. Creditably, their shares trade above their tangible book values. Credit Suisse stock is worth a miserable third of its TBV.
Hoping to turn the page on a woeful story, Credit Suisse aims to shrink its capital-hungry investment bank by two-fifths. This is at present hogging 32 per cent of risk-weighted assets. Most of those reside within a securitised products group that Apollo and Pimco plan to buy. The balance would tumble into a “bad bank” before being wound down.
The loss of deferred tax assets on the SPG unit contributed to a net loss of SFr4bn in the third quarter, compared with SFr1.6bn the previous quarter. The bank plans to raise SFr4bn of capital next month from shareholders. New investor Saudi National Bank will take up SFr1.8bn of this. Net dilution will be at least 20 per cent, thinks Citigroup.
On a conference call, executives insisted they were simplifying the bank. Analysts seemed bemused. No wonder. The new core of Credit Suisse will be wealth, asset management and Swiss banking. But the group will keep a markets division, including equities, plus other investment banking units.
On top of that, Credit Suisse will carve out a boutique investment bank. Its rebooted CS First Boston brand may lure nostalgic co-investors. Barclays, already a beneficiary of Credit Suisse’s woes, will be rubbing its hands in hopes of mopping up more displaced clients.
Credit Suisse is too cheap to be good value. Net interest income boosts via steeper interest rates could provide half of any revenue gain to 2025. That is a bet on higher-for-longer inflation. About 5,000 staffers will eventually go, 17 per cent of the total. The target return on tangible equity of 6 per cent by 2025 is still the lowest of any European bank.
To enjoy any credibility, Credit Suisse wealth managers would have to steer clients away from buying shares in their own employer.
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