Credit Suisse has launched another strategic review just a month after its previous restructuring was refined by chief executive Thomas Gottstein, who will be replaced this week by the group’s asset management boss Ulrich Koerner.
The results of the review will be released in three months when the bank reports third-quarter figures but is likely to see the investment bank shrink further, largely by trimming the amount of capital devoted to its markets business.
That has already been cut back significantly following the collapse of prime broking client Archegos Capital Management in March 2021, which saw the bank lose US$5.5bn. Since then Credit Suisse has exited prime services, reducing its equities capabilities significantly.
The bank has said it will not put more capital into its structured products business. That has been performing strongly but the board has decided to seek more capital for it from third parties. Chairman Axel Lehmann declined to say what options that might entail but it could include a sale of the business.
BNP Paribas took on the bulk of Credit Suisse's prime broking clients but, speaking at its second-quarter results on Friday, finance director Lars Machenil tried to quell speculation the French bank might be interested.
“We are frugal. We look at things that are complementary to us and if the price is right we have our eyes open but it has to tick boxes on all fronts and has to be at the right price," he said.
The structured products unit uses US$20bn of risk-weighted assets and US$75bn of leverage. Credit Suisse said it was “fully committed” to supporting its clients but wants to free up capital to use elsewhere, explaining the possible need for third parties to contribute instead.
Senior changes
Lehmann only formally started in his role at the bank’s annual general meeting at the end of May. He replaced Antonio Horta-Osorio, who left after less than a year in the post after breaking Covid-19 restrictions.
Gottstein became chief executive in February 2020 succeeding Tidjane Thiam, who left following controversies involving spying on colleagues, among other things. Gottstein’s reign has been beset by scandals, including the failure of Greensill Capital, which was heavily backed by Credit Suisse clients.
Long-standing chief financial officer David Mathers has also said he will retire before next year’s AGM, meaning the bank will have a virtual complete sweep of new executives.
The bank said it wanted to “go beyond the conclusions of last year’s strategic review” given the changed economic environment. The result will be an investment bank that becomes a “capital-light, advisory-led banking business and more focused markets business”, said Lehmann.
The markets side will complement its core wealth management and Swiss bank franchises, he said.
The group will target total costs of below SFr15.5bn (US$16.1bn) in the medium term, which Mathers described as less than four years. Last month the bank set out plans to save SFr800m annually over that period.
Koerner took up his position as asset management chief in April last year, after the Greensill and Archegos scandals. He joined from UBS, where he was in charge of asset management for six years and previously chief operating officer and head of Europe, Middle East and Africa for five years.
David Miller, head of investment banking and capital markets, and equity derivatives expert Michael Ebert, have been appointed co-heads of the investment bank. The division’s chief executive Christian Meissner will focus on strategy and the overhaul of the business.
Lehmann said he hoped the review would restore Credit Suisse’s position "as the bank for entrepreneurs in global finance". Former Citigroup investment banking boss Michael Klein, who is a group director, will lead the board committee in charge of the review.
Weak figures
The bank also reported a SFr1.17bn pre-tax loss for the second quarter, largely thanks to a 40% decline in revenues at the investment bank to SFr1.11bn, flagged in a profit warning last month. In the same period last year the group reported pre-tax profit of SFr813m.
“The IB’s franchise positioning was not geared towards benefiting from the volatile market conditions and our areas of strength, such as capital markets, were significantly impacted,” the bank said.
It also took a SFr235m writedown on unsyndicated leveraged finance deals. This mark was made against its capital markets revenues, which slumped 96% year on year to just SFr38m. Advisory was a brighter spot with fees improving 44% to SFr183m.
A year ago equities sales and trading made a SFr29m loss after the Archegos scandal in that division. This quarter, thanks to a strong derivatives performance, it reported revenues of SFr330m. Fixed-income revenues fell 28% to SFr600m, underperforming rivals significantly.
The bank said it expected the current market conditions to continue for some months, which might mean its “robust pipeline of transactions … may prove difficult to execute in the current market environment”. It said it expected to make a further investment bank loss in the third quarter.