Credit Suisse Group AG’s board is heading into key meetings in Singapore this week with members split over the magnitude of cuts to be made at the firm’s troubled investment bank.
(Bloomberg) — Credit Suisse Group AG’s board is heading into key meetings in Singapore this week with members split over the magnitude of cuts to be made at the firm’s troubled investment bank.
One camp, including former Citigroup Inc. dealmaker Michael Klein and ex-JPMorgan Chase & Co. executive Blythe Masters, have pushed recently against an aggressive downsizing, according to people familiar with the matter. Others are in favor of more extensive cuts across the unit, the people said.
After racking up billions of dollars in losses and replacing ex-Chief Executive Officer Thomas Gottstein, Credit Suisse is taking aim at the investment bank, which has been at the heart of some of its biggest troubles. The dilemma is how much it can cut while keeping wealth management clients onside with the products and services they need, from advice on initial public offerings to debt and other financing.
“We have said we will update on progress on our comprehensive strategy review when we announce our third quarter earnings,” on Oct. 27, Credit Suisse said in a statement. “Any reporting on potential outcomes before then is entirely speculative.”
The ad-hoc committee looking at the future of the investment bank is spearheaded by Klein and includes board members Masters, Mirko Bianchi and Richard Meddings. Investment bank head Christian Meissner is leading the development of the plan.
The splintering could complicate the board meeting in the Asian financial hub this week where it’s seeking to set the main strategic direction, after promising to update investors on its plans within weeks. Credit Suisse already met analyst skepticism on plans to potentially attract new capital to its structured products group.
The board is also set to discuss the onshore China business strategy, Bloomberg earlier reported, including its ambitions in the country.
The bank faces a capital gap of at least 4 billion Swiss francs to improve its financial strength, fund its restructuring and support growth, Deutsche Bank analysts wrote in a note to clients on Tuesday.
Credit Suisse could significantly reduce its fixed income trading business and exit rates trading, while lowering capital allocated to its credit business, the analysts said. The bank is also likely to reduce its debt capital markets and leveraged loans businesses.
New Credit Suisse CEO Ulrich Koerner was brought in with a mandate to end a string of losses and reputational hits. The bank signaled in July that it’s seeking a leaner investment bank to complement its wealth management and Swiss-focused corporate bank. It plans a capital-light, advisory-led banking business and more focused trading business.
But executives disagree on just how much capital markets access and trading services the bank needs to keep in-house to offer its millionaire and billionaire clients, according to the people familiar.
UBS Group AG, a main competitor in wealth management, has long argued that it needed a sizable, but reduced investment bank to support private banking. Julius Baer Group Ltd. does trading and some advisory in-house while offering clients access to investment products from other financial services firms.
The benefits of having an in-house investment bank “have never been visible in the Credit Suisse numbers with pure plays outperforming” those with both investment banking and wealth management, the Deutsche Bank analysts said.
The Swiss bank also needs to work on its cost-income ratio for its wealth division, possibly helped by lower-growth country exits, as well as better support its “cash cow” Swiss business by digitizing more processes, according to the analysts.
As a first step, Credit Suisse is reviewing its securitized products unit, given its consumption of capital and lack of link with the rest of the bank, and is seeking third-party capital. Executives said they wanted to keep a part of the revenues, rather than a complete sale.
A sale at book-value could yield 3 billion francs of freed-up capital for the bank, according to the Deutsche Bank analysts.
Credit Suisse Faces $4.1 Billion Capital Gap, Deutsche Bank Says
(Updates from eighth paragraph with details from Deutsche Bank analysts.)
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