|Credit Suisse chief executive Tidjane Thiam makes his point|
New chief executive Tidjane Thiam announced a series of dramatic changes on Wednesday after a strategic review.
Among them is the decision to float the Swiss business. The bank said it is planning a “partial IPO of a stake, estimated today to be between 20% and 30%, in [its] Swiss Universal Bank by the end of 2017”.
Thiam said those funds could be used to take advantage of much-needed consolidation in the industry, but onlookers point out that might be wishful thinking.
“There are no large Swiss banks for sale and if there were it would not make sense to buy them as it would dilute Credit Suisse’s value – and it wouldn’t be worth their time to buy small banks,” says Ray Soudah, founder and CEO of MilleniumAssociates, an M&A and corporate advisory firm based in Switzerland and the UK.
Soudah suspects Thiam will break the bank into three parts – also IPO-ing the Asian business. “It makes sense,” he says. "The parts are more valuable than the sum, so you could end up with the investment banking business, which has a low value but provides services to the wealth management businesses; a Swiss business, and an international business. We will see.”
Thiam’s new strategy does seem to point to dicing the bank these three ways. The new direction is for a more streamlined international private banking business with a focus clearly on Asia.
The US is not in that future. Credit Suisse is moving its PB clients and advisers to Wells Fargo if both clients and advisers agree. The private banking business has been flailing for the past eight years, unable to gain scale with profits steadily declining, despite bringing in prime brokerage head Phil Vasan to oversee the business two years ago.
Any efforts to regain ground were lost when the bank hit another US client tax-evasion scandal. It won’t be a huge loss for the firm as Credit Suisse has only 275 brokers. Wells Fargo will also be a partner in distributing Credit Suisse’s asset management and investment banking capabilities.
In Western Europe, the bank has confirmed what was clear – it’s not a market it wants to be in. Two years ago it sold its German private banking business to ABN Amro. It also moved away from servicing the mass-affluent segment in Italy. In the last three quarters of 2014, it barely took on new assets in Europe.
Instead, the bank plans to scale up its private banking and wealth management franchise in Asia, Eastern Europe, the Middle East, Latin America and Africa, where entrepreneurs will be the focus. It’s not ground-shaking. Those are the markets where the firm has the most success as an international private bank – although it’s hard to be a bank for entrepreneurs without a thriving investment bank, which Thiam says will be addressed.
As part of the overhaul, Hans-Ulrich Meister, joint head of private banking and wealth management, and Rob Shafir, head of the Americas, will be leaving. Both joined the firm at possibly the worst time. Meister joined Credit Suisse from UBS in 2008 to run the Swiss banking and private banking business, while Shafir joined in 2007 from Lehman Brothers.
They just haven’t been able to pull the bank up out of the quagmire, but Meister has ensured the bank’s reputation has not been as impacted by the US scandals and investment banking losses as it could have been.
Replacing them will be Iqbal Khan for the international private bank and Thomas Gottstein for the Swiss Universal Bank. Gottstein has been running the premium clients business for Credit Suisse, but Khan is an unusual choice for head of international wealth. He only joined Credit Suisse in 2013 and was previously at Ernst & Young.
1) They will have to push to make sure the investment bank is improved. That’s not their remit, but if they want to make Credit Suisse the choice for entrepreneurs, the investment banking business will have to be slicker.
2) Digital strategy. Credit Suisse is so far behind its peers UBS, Citi and DBS in both client-facing digital services and back-end technology. On its side is the fact many other banks have been slow to move. It also has a good digital team – but it has been sitting twiddling its thumbs for too long instead of implementing ideas and that needs to get moving.
3) Going all-in in Asia. Latin America is an odd basket to throw your eggs into right now, given the outlook, as is emerging Europe, so Credit Suisse will have to go all-in in Asia. It could work out. UBS is good in Asia but it is not great. The same for JPMorgan and Citi.
There is a gap there for a solid international bank and Credit Suisse could do that. It will be up against regional players, which are also looking to increase their footprint, such as DBS and CIMB, but having the “Swiss” label, while not as prestigious as it once was, will help in attracting new wealthy Chinese clients.
An international investment bank will also be an advantage. If that happens, and MilleniumAssociates' Soudah is correct, an IPO of the Asian business could serve the bank and its shareholders well.
4) On its domestic shores, the bank needs to improve its reputation. Thanks to Credit Suisse’s decline, Julius Baer has emerged as something of a darling in the industry and, without competition from UBS and Credit Suisse, it has been able to pick and choose the best assets for its expansion.
If Credit Suisse does make acquisitions, they will need to be well-thought lest Credit Suisse just ends up buying banks with legacy tax-evasion issues, or more likely, simply unprofitable clients. It doesn’t need another reason for the Swiss people to dislike it.