Credit Suisse Group took its most dramatic step yet to repair the bank, unveiling a fresh plan that will see a multibillion-dollar capital raise, a carve-out of the investment bank and thousands of job cuts after it posted another huge loss.
The Zurich-based bank plans to raise 4 billion francs (€4.1 billion) through a rights issue and selling shares to investors including the Saudi National Bank, it said on Thursday. It is effectively breaking up the investment bank, separating the advisory and capital markets business and selling a majority of its SPG business to Apollo Global Management and Pacific Investment Management.
The overhaul is an urgent attempt to restore credibility at Credit Suisse after a succession of huge losses and management chaos shattered its status as one of Europe’s most prestigious lenders. Chief executive Ulrich Körner and chairman Axel Lehmann, brought in as crisis managers, now face the task of executing the biggest overhaul in the bank’s recent history while protecting the wealth management unit that will determine its future. Former Bank of Ireland chief executive Francesca McDonagh joined Credit Suisse as group chief operating officer last month.
“The new Credit Suisse will definitely be profitable from 2024 onwards,” Mr Körner said in an interview with Bloomberg Television. “We do not want to over-promise and under-deliver, we want to do it the other way around.”
Some of the biggest changes will come at the investment bank, including the departure of its head, Christian Meissner, and the revival of the First Boston branding. The separate business will include the bank’s historically strong advisory and leveraged finance unit and be led by Michael Klein, a veteran ex-Citigroup dealmaker known for his ties with the Middle East. The carve-out will also seek outside capital for the leveraged finance business.
Bank executives had wanted to avoid a capital increase given the shares were trading near record lows, but had seen outflows from wealth management clients and ultimately decided to boost capital to help shore up its finances.
“Credit Suisse seems to be wanting to put a line under concerns by wealth management clients,” JPMorgan Chase analyst Kian Abouhossein wrote in a note to clients on Thursday. “Material questions remain to assess well the outcome of the IB restructuring, which is relatively more complicated to what we witnessed in the case of UBS and Deutsche Bank.”
Credit Suisse said it will only pay a “nominal” dividend over the next couple of years, before reverting to “meaningful” dividends from 2025 onwards.
The strategic review came alongside another large quarterly loss as Credit Suisse’s investment bank continued to struggle and wealthy clients fled. The lender posted a net loss of 4.03 billion francs, including a 3.7-billion franc impairment of deferred tax assets related to the revamp, and said the restructuring will cost about 2.9 billion francs until 2024. It will probably record a fourth-quarter loss.
The firm will also start headcount reductions of 2,700 positions in the fourth quarter and said that its workforce is set to decline to about 43,000 by 2025, from 52,000 at present. The bank is also seeking to reduce the group’s cost base by 15 per cent, or 2.5 billion francs, by then.