Awards for Excellence 2018
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Credit Suisse’s story is one of finding profitable niches and attacking them with commitment, innovation and smart use of the balance sheet. It rarely tops any commoditized league table, but it does make good money. And that is the right model for a changed investment banking environment in Asia.
Don’t look for Credit Suisse on triple-A rated sovereign bond deals. Look for it on high-yield bonds, on convertibles and in leveraged finance. Look for it in Pakistan, in Vietnam and in Indian private financing. Find it not only on the latest trend but ahead of it.
The reason Credit Suisse won our regional financing award for Asia last year – a controversial choice at the time, but since mirrored by many other judges – was because of its skill in deploying the balance sheet in interesting structures to get a decent fee from specialized areas. Its ascent to the investment banking award this year reflects continuing success at that, now embracing not only financing but advisory, and with growing momentum in former weak spots like China and Japan.
So, for example, in Asia ex-Japan, Credit Suisse ranked second for investment banking fees, just a shade behind Morgan Stanley, despite the fact that much of its interesting private finance work does not make the league tables. Edwin Low is co-head of investment banking and capital markets, Asia Pacific.
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| Edwin Low |
At the heart of the Credit Suisse model in Asia is true partnership between the private bank and the investment bank – something everyone says they do, but which really is instrumental to this bank’s success. The Asia-Pacific (Apac) division, which reports as an individual entity in the overall group results and whose progress can therefore be clearly measured, is seen as instrumental to the global bank’s growth and even, in dark times, its survival in its current form.
In the first quarter of 2018, that division delivered pre-tax income up 73% year on year, providing a return on regulatory capital of 21%. Within that, the Apac Wealth Management & Connected business, which includes private banking, advisory, underwriting and financing (the fact that these businesses report as a collective tells its own story), was up 25% on pre-tax income year on year, has doubled since 2016 and delivered a return on regulatory capital of 36%.
This was partly due to a record quarterly result for private banking, but the advisory, underwriting and financing segment also hit record first-quarter revenues.
One argument often levelled against Credit Suisse during our review period was the upheaval in its markets business, which underwent a difficult restructuring. But, financially, the hacking worked; first-quarter net revenues in the markets business were up 19% year on year; fixed income sales and trading revenues were up by 55%.
Optimistic view
Another is the staff departures the bank has faced, most obviously Mervyn Chow to Hillhouse, and, after our review period, Indonesia stalwart Robby Winarta to Carlyle. The bank argues it is better to lose these people to private equity than to rivals and the fact that names like this target Credit Suisse bankers speaks to the ballsy, modern nature of its model. The optimistic view is that they may even give it better access to Hillhouse and Carlyle, although that remains to be seen.
The third bugbear is the widely cited claim that Credit Suisse has exposures others could not take, allowed to do so by the collateral it holds in the private banking arm. But if these were problematic, we should be able to see it in the provisions in the published numbers by now – and we cannot. The risk department does knock back deals and is not blindly backing obtuse financings.
In the end it is the deals that matter. The standouts included advising Temasek on the sale of Danamon to MUFG, a highly complicated and sensitive deal that required an innovative three-stage settlement period; the Vincom Retail initial equity offering in Vietnam, a landmark that has already proven influential in subsequent, bigger deals; and a $3.5 billion combination of a senior notes exchange offer and a new high-yield bond for Kaisa Group, a company that only three years earlier had become the first Chinese developer ever to default on offshore debt and then suffered a two-year trading suspension.
