Credit Suisse CEO tries to bail out a leaky ship
LONDON, Feb 9 (Reuters Breakingviews) - Chief Executive Ulrich Körner is doing what he promised at Credit Suisse (CSGN.S). But the leaky ship is letting in water as fast as he bails it out. Unless the Swiss lender wins back the confidence of wealthy clients, it might be time to start thinking about alternatives to his turnaround strategy.
It’s less than four months since the former UBS (UBSG.S) executive unveiled a rescue plan for the $11 billion Swiss group, based on cutting costs and hiving off superfluous investment banking assets. The goal is to focus Credit Suisse on its steadier wealth-management and retail banking units.
Fourth-quarter results, released on Thursday, showed a few signs of progress. Körner reckons he’s on track to cut $1.3 billion of expenses this year, equivalent to about half the total planned reduction by 2025. Credit Suisse has also shed about $25 billion of risk-weighted assets and is on track to get rid of even more.
That’s where the good news ends, though. Credit Suisse's clients pulled about $120 billion in the fourth quarter, most of it from the wealth management unit, amid unfounded rumours about its financial stability. The markets businesses, meanwhile, effectively ground to a halt. Revenue from trading equities was just $15 million, down 96% year-on-year, partly because Credit Suisse clamped down on risk. In the same period, local rival UBS booked equity trading income of $883 million.
If those trends persist, Körner’s turnaround strategy makes less sense. Its premise is that after 2025 Credit Suisse will be focused on a thriving wealth-management unit. But the business already looks less attractive than a few months ago, raising the question of whether the final destination justifies the risky restructuring. Though Körner says he is winning back client money in the form of deposits, it’s hard to reassure customers while the bank remains in the red. After a 10% drop on Thursday morning, Credit Suisse shares are trading at roughly one-quarter of the bank’s tangible book value, implying that investors remain highly sceptical.
Körner has alternatives. Analysts reckon the domestic Swiss business alone could be worth about as much as the group’s current market capitalisation. Spinning it off to shareholders could in theory salvage more value. Another option is a merger with a rival like UBS. Körner will be reluctant to change course so quickly. But until he can prove that a safe harbour is in sight, other options for plugging Credit Suisse’s leaky hull will remain alluring.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
Credit Suisse on Feb. 9 reported a pre-tax loss of 1.3 billion Swiss francs for the fourth quarter of 2022. Revenue for the quarter was 3 billion Swiss francs, down a third from the same period a year earlier, while operating expenses rose by a third.
Clients pulled a net 111 billion Swiss francs of assets from the group during the three-month period. Two-thirds of the outflows came in October, as unfounded rumours circulated about Credit Suisse’s financial stability.
The Swiss bank said that customers were still pulling money from its key wealth-management business at the end of the quarter, albeit at a much slower pace, but that the division had started gaining new deposits again in January.
Activity in the bank’s sales and trading businesses cratered in the fourth quarter, pulling down revenue in its investment-banking division by 74% year-on-year.
Credit Suisse shares were down 9.7% at 2.94 Swiss francs as of 1041 GMT on Feb. 9.
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