Under pressure after another quarter in the bright red, Credit Suisse announced a sweeping recovery plan including a “radical restructuring” of its investment bank and cost-cutting as a result of 9,000 job losses.
“We all know that Credit Suisse is at a critical moment in its history,” Chairman Axel Lehman said Thursday during a conference call with media and analysts. As the second Swiss bank faces many difficulties, the latter has no choice but to “do the right thing (and) return to its values”, Mr. Lehman added.
Ulrich Koerner, who came to the management of the Zurich company at the end of July, admitted that “we were not disciplined enough with regard to risks and costs”. The group now “must work hard to restore trust”, he hammered.
To achieve this, leaders want to focus on wealth management and the historic Swiss market, while betting on solid ownership in asset and market management. A number of measures should make it possible to reallocate capital to these two central units, which are considered more stable and less capital intensive.
As for its troubled investment bank, management has “taken decisive steps to restructure” the firm, which now needs to focus on its core business. These measures can reduce risky assets by 40% within three years.
The new company, which will take the former name of CS First Boston and include capital markets and advisory functions, will operate autonomously and attract new capital. Michael Klein, a director who is leaving the group, is to become managing director of CS First Boston, headquartered in New York, next year. An investment of about $500 million has already been committed by a “significant investor,” according to Koerner.
The creation of a “bad bank”.
The group intends to build a capital release unit (CRU) for its loss-making operations, including securitized product operations, prime services, credit units in certain emerging countries and institutional presence in certain countries. CRU will be chaired by Louise Kitchen.
Credit Suisse has also concluded a deal to transfer a significant part of its securitization division, Securitized Products Group (SPG), to a group of investors led by Americans Apollo Global Management and Pimco. The deal is expected to close in the first half of 2023.
Investment banking boss Christian Meissner is leaving the firm, effective immediately.
Credit Suisse plans to cut costs by 15%, or 2.5 billion francs. 14.5 billion by 2025 to reduce its operating costs. Of this amount, 1.2 billion should be saved next year. In the immediate term, these measures will cost 3.7 billion in depreciation in the 3rd quarter and an additional 2.9 billion between the end of 2022 and 2024.
They will also impact employment, with the bank planning to cut its workforce by 9,000 in the third quarter of 2025. Layoffs of 2,700 full-time equivalents are currently underway. The bank plans to cut its consultant costs by 50% and its costs with subcontractors by 30%.
In Switzerland, the number of jobs should be cut from about 2,000 to 14,000 jobs, Mr. Lehman explained.
As a key part of its strategy, the establishment intends to raise around 4 billion francs by issuing new shares, notably from the Saudi bank Saudi National Bank, which has committed 1.5 billion or 9.9% of the share capital. This move makes it possible to raise the core capital ratio (CET1) to 14.0% from the current 12.6%.
The Saudis enter the capital
With this, Saudi National Bank will become Credit Suisse’s largest shareholder, surpassing Harris Associates (5.17%), BlackRock (5.06%) and Qatar Investment Authority (5.026%). For CEO Ulrich Körner, this is “a historic moment for Credit Suisse”, which must become a “new, simpler (and) more sustainable bank”.
The bank has faced several difficulties in recent years, including the constant upheaval of its management. The establishment has raised other concerns as well. The failure of American hedge fund Archigos cost him more than 5 billion francs. The latter is also involved in the liquidation of Greensil funds, named after the bankrupt British factoring company, where it initially disclosed $10 billion.
Last year, Credit Suisse was hit particularly hard by these two scandals, suffering a net loss of 1.6 billion francs. In the third quarter of 2022, the bank posted another net loss of Rs 4.03 billion.
The news was not well received by investors. At 11:45 a.m., Credit Suisse was down 12% at 4.195 francs, down 0.69% on the SMI index.
This article was published automatically. Source: ats/awp