Credit Suisse Banking On Restructure Redesign

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The new chief executive of Credit Suisse, Ulrich Koerner, faced with a bid to turn around the beleaguered bank following multiple scandals, is expected to unveil his strategic roadmap on Thursday.

Switzerland’s second-largest bank is under pressure after investors saw their money go up in smoke as stock prices crashed.

And the fragile economic outlook, recent market turmoil and rising interest rates could further complicate Koerner’s task as he unveils his restructuring plan.

With a turnover of nearly 22.7 billion Swiss francs ($22.65 billion) in 2021, Credit Suisse is second only to UBS in the Swiss banking sector.

But unlike its competitor which made a net profit of 7.4 billion dollars, Credit Suisse suffered a loss of 1.6 billion francs.

Founded in 1856 by Alfred Escher, the pioneer of the Swiss railways, the bank then called Schweizerische Kreditanstalt has become a pillar of Swiss finance.

It financed the construction of the Gotthard tunnel, the development of large industrial companies but also insurance giants, including Swiss Life and the reinsurer Swiss Re.

The Zurich bank is a force on the international scene, especially since it bought the American investment bank First Boston in 1990. Present in some forty countries, it employs 51,410 people worldwide.

Credit Suisse is one of 30 global banks deemed too big to fail, forcing it to set aside more cash to weather a crisis.

At the end of June, its CET1 ratio – which compares a bank’s capital to its risk-weighted assets – stood at 13.5%: slightly lower than HSBC Holdings but higher than BNP Paribas, the two most large European banks for which the regulatory requirements are even higher.

Banking experts therefore dismiss social media rumors earlier this month of a “Lehman Brothers moment”, referring to the US bank that collapsed, triggering the 2008 financial crisis.

“The bank will go through difficult times,” Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, told AFP, but “not because of a solvency or liquidity risk”.

Credit Suisse has already gone through a major restructuring under Tidjane Thiam, its chief executive from 2015 to early 2020.

The objective was to relieve the investment bank of its most volatile activities and to strengthen wealth management, through capital increases of six billion and then four billion Swiss francs.

In November 2021, another reorganization is launched after a series of scandals which have tarnished its reputation.

Since then, Credit Suisse’s activities have been divided into four divisions: Wealth Management, Asset Management, Swiss Banking and its Investment Banking arm.

Wealth management – specializing in investments for wealthy clients – and Swiss banking – encompassing retail banking and other domestic businesses – are seen as the most stable.

In the first half of 2022, wealth management, which accounts for 30% of the bank’s revenues, suffered 1.4 billion Swiss francs in capital outflows, mainly from European and Middle Eastern clients.

The Swiss bank, which accounts for about a quarter of Credit Suisse’s revenue, was the only division to see an increase in revenue.

The asset management branch was rocked by the bankruptcy of British financial firm Greensill, in which some $10 billion had been committed through four funds.

Meanwhile, the investment bank was hit by the implosion of US fund Archegos, which cost Credit Suisse more than $5 billion.

While asset management accounted for only about 8% of Credit Suisse’s revenue in the first half of the year, investment banking contributed 37%.

In the first six months, the investment banking division, active in areas such as debt issuances and mergers and acquisitions, recorded losses of 992 million Swiss francs after a loss of 3.7 billion francs in 2021.

Investors have long called for reform of the division, saying it lacks the clout to take on big US banks.

In 2011, the Ethos foundation, which represents pension funds in Switzerland, strongly opposed an issue of convertible bonds aimed at strengthening the branch, judging the investment bank to be too capital intensive.

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