After months of reflecting, Credit Suisse chairman Axel Lehmann disclosed an overhaul “to rebuild Credit Suisse as a strong … bank with a firm foundation, rock-solid like our Swiss mountains”. It did not take a very long time for the first cracks to crop up.
The announcement of the blueprint early on Thursday prompted a sell-off in the bank’s stock that lobbed over 2 billion Swiss francs ($2 billion) off its market worth, around a fifth of its value, bringing its worth to below 11 billion Swiss francs.
“You come away with the feeling that they were rushed … with a deeply incomplete plan,” Goldman Sachs analysts wrote to their clients in a note seen by Reuters, adding that the bank’s plan was “short on detail”.
Such sentiment was expressed elsewhere. “A lot of detail is lacking still,” said Johann Scholtz, an analyst with Morningstar. Unusually, Swiss regulator FINMA too struck a guarded tone, saying it would closely monitor the bank as it launches its plan.
“It is clear that FINMA will continue to monitor that all the supervisory requirements are met during the implementation phase of the new strategy,” it told reporters.
On October 27, Credit Suisse outlined plans to obtain 4 billion Swiss francs from investors, lay off thousands of employees, and divert its focus from investment banking towards its rich clients. The announcement came after a difficult few weeks when the once esteemed Swiss institution had even become a ‘meme stock’ at the centre of a social media storm.
Credit Suisse said its clients withdrew funds in recent weeks at a pace that caused the lender to violate some regulatory requirements for liquidity, highlighting the strong impact of social media speculation and wild market swings about its health.
Asked about this, FINMA said:
“It is clear that a credible plan must exist for how the buffers can be replenished within a reasonable period.”
Credit Suisse’s Plan
The bank’s turnaround plan is lengthy and complex. Its chairman Lehmann tried to bring it to the point.
“We need to remember our origins and return to the core of our business,” he told analysts, talking of its wealth management business.
In its bid to resume profitability after a series of scandals and losses, the bank will reduce its workforce by about 9,000 to about 43,000 by the end of 2025. It will separate its investment bank to set up CS First Boston, focused on advisory work such as arranging deals on capital markets and mergers and acquisitions. It intends to sell off risky investments.
The bank intends to achieve a return on tangible equity – a key measure of profitability – of 6% by 2025, a metric that falls behind its peers and may be difficult to achieve because of the risk tied to the restructuring plan, according to analysts at Jefferies.
This lender also secured the backing of Saudi National Bank, majority-owned by the government of Saudi Arabia, which will invest up to 1.5 billion Swiss francs to obtain a stake of up to 9.9%. Harris Associates, one of the bank’s largest shareholders, was positive, approving the bank’s “aggressive” approach to improving.
But the unfinished nature of the plan and the decrease of existing shareholders attracted criticism, including from Vincent Kaufmann, head of Ethos, which represents shareholders owning more than 3% of Credit Suisse stock. He said:
Buy Crypto Now“We are critical of the entry … of a new strategic shareholder in view of the current valuation. The new shareholder will obtain nearly 10% of the capital for only 1.5 billion francs.”
Credit Suisse Must ‘Draw A Line’
The latest revamp, attempting to deal with the bank’s worst crisis in its history, is the third attempt in recent years by successive CEOs to shake up the group.
“We all know we need to get this right,” said Lehmann, acknowledging that the bank had disappointed many. “We need to draw a line clearly.”
Once a symbol of Swiss reliability, the bank’s image has been damaged by a string of scandals, including unprecedented lawsuits at home involving laundering money for a criminal gang.
In 2021, the bank suffered a $5.5 billion loss from the collapse of U.S. investment firm Archegos and had to freeze $10 billion worth of supply chain finance funds tied to insolvent British financier Greensill, underlining risk-management failings.
Its aggravating problems even place it on the radar of day traders this month, when a frenzy of wild speculation about its health drove its stock price to an all-time low. On Thursday, as the bank’s shares skidded, social media platforms such as Twitter or Reddit were mostly silent.
But investors and analysts who spoke to reporters aired a sense of continuous unease, with one shareholder, requesting to remain unnamed, describing a “bleak picture overall”.
“Execution of this is highly dependent on economic forces that are out of their control,” said Chris Marinac, director of research at investment firm Janney Montgomery Scott.
“If we were in a great market, you could probably give the company some benefit of the doubt. But because it’s Fall of 2022 and there’s all this uncertainty … it’s really hard. And that’s the pond that Credit Suisse is swimming in.”
($1 = 0.9902 Swiss francs)
