Sideways: Credit Suisse shouldn’t stop at a three-way split
From Spacs and securitized products to executive compensation and supply-chain planning, Credit Suisse could split its investment bank into more than three parts.
The much-anticipated restructuring of Credit Suisse’s investment bank could involve a three-way split and possible revival of the First Boston brand, according to recent reports. The bank’s board can surely take a bolder approach to monetising its areas of excellence and exploiting its rich back catalogue of brand names.
Board members Michael Klein and Blythe Masters have reportedly been interacting with staff about the restructuring and could go a step further by personally carving out viable units in partnership with in-house bankers.
If anyone can sell the idea of a capital-intensive complex structuring group as a potential spin-off, Blythe Masters can
Klein could lead the establishment of ‘Credit Spac’ in partnership with Niron Stabinsky, for example. The two bankers are leaders in special purpose acquisition company structuring – Klein for his own many vehicles and Stabinsky as head of Credit Suisse's business when it led the league tables for much of the 2019 to 2021 issuance frenzy, then tactically ceded some market share before the bubble burst this year.
Both men know that after a period of losses for late-cycle investors the Spac market is bound to bloom again.
Masters could team up with Jay Kim to set up ‘Credit Sec’ and let the bank’s crack team of securitized product specialists work their magic in a standalone unit. Kim has run securitized products at Credit Suisse for much of the last decade and delivered strong profits with only the occasional tiresome blow up, while Masters helped establish the credit derivatives markets when she was at JPMorgan. If anyone can sell the idea of a capital-intensive complex structuring group as a potential spin-off, she can.
Credit Suisse also has a strong track record in devising executive compensation plans. Some of its current investment bankers may be congratulating themselves on negotiating retention bonuses ahead of what is turning out to be a fallow period for their peers at other banks that don’t face the same reputational challenges as Credit Suisse.
But their achievements pale in comparison to those of former chief executive Brady Dougan, who in 2010 received payment of around $100 million from two separate executive compensation schemes. Older bankers often annoy their younger successors with tales about the good old days of big bonuses, but Dougan pulled off this feat two years after the 2008 global financial crisis, which is doubly impressive.
As an important Credit Suisse shareholder Dougan may well be willing help his former deputies to set up a unit called ‘Credit Comp’ to monetise this skill set.
Scandals such as the implosions of clients Greensill and Archegos Capital got Credit Suisse into its current mess, but if WeWork founder Adam Neumann can reinvent himself as a disrupter of the residential property market there is no reason departed the firm's executives can’t also embrace their personal challenges as learning opportunities.
Former Credit Suisse Asset Management head Eric Varvel must have picked up valuable lessons from his extensive interaction with Greensill and could set up a new unit called ‘Credit Supply’, with a focus on funding unpaid invoices and using AI to check whether or not they are real.
The idea of reviving the First Boston brand to house some of Credit Suisse’s advisory business is an obvious potential game changer for employees and clients alike. The bank shouldn’t stop there, though. In 2000, Credit Suisse paid $11.5 billion to buy US investment bank DLJ. The purchase was effectively written off in subsequent years, but a revival of the brand now might make sense. Credit Suisse has also had an interest in other brands from the past such as BZW and White Weld that could be resuscitated.
With its shares taking another downward lurch towards SFr4 ($4.06) on September 23, Credit Suisse might need to adopt an all-of-the-above approach to ideas for restructuring its investment bank.