Specialist
Former senior executive at Credit Suisse Group AG
Agenda
- Likelihood of break-ups and divisional possibilities
- Asset liquidity and CET1 (common equity tier 1) ratio analysis
- Credit Suisse’s (NYSE: CS/VTX: CSGN) management, strategy and reputational damage
- CDS (credit default swaps) spread management and outlook
Questions
1.
What do you think is going on with Credit Suisse? The company’s CDS [credit default swaps] spreads went over 350bps. They’re now trading around 250bps, which is still elevated, and this shows a growing lack of confidence in the bank, with some outlets giving over a 25% chance of default within five years. Coupled with the Archegos and Greensill scandals that marred the bank throughout the pandemic, it’s led to very high executive management turnover, along with long-lasting reputational damage. Now we have news on a USD 500m settlement for scandals in the 2008 financial crisis. It appears that Credit Suisse is the last of 16 banks to face a Forex rigging case in the US, which the other 15 banks have been fined USD 2.3bn for. The bank has now offered to buy back USD 3bn worth of debt, among other measures, to try and restore some confidence in its business ops, though investors are still worried about how the company will cover the cost of its restructuring plan. It’s thought to be a CHF 4.5bn hole that needs plugging and around 6,000 jobs could be cut. There’s also news flow that Christian Meissner, CEO of the IB [investment banking] division, is leaving.
2.
What do you think the media is getting wrong about Credit Suisse? You mentioned that the CDS narrative is not necessarily true. What else may be happening?
3.
Do you think the news flow is causing markets to overreact, or is there something that structurally needs resolving?
4.
Credit Suisse has gone through multiple IB division restructurings over the past few decades. What do you think makes this time different?
5.
What has been driving and impacting flows for Credit Suisse? Where has the company been gaining and potentially losing market share?
6.
How much do wealth management clients care about Credit Suisse’s capital base?
7.
How might the recent negative headlines impact new wealth management flows?
8.
What is a typical sales cycle in wealth management? I’m assuming that Credit Suisse will potentially deliver a positive strategic update later in October 2022. How long is it before the net outflows of the past few quarters could be reversed?
9.
Do you think there’s a level above the required capital that Credit Suisse’s wealth management clients and clients in other divisions would need to see to not pull their money? I’m aware that the liquidity coverage ratio is 191%, which is much higher than it needs to be.
10.
To what extent do Credit Suisse’s IB and AM [asset management] divisions support the wealth management division?
11.
What is currently the biggest risk to flows? Is it deposits moving away or derivatives requirements?
12.
Why do you think Credit Suisse was so successful when it was building out its platform in Asia?
13.
What are Credit Suisse’s key competitive strengths and weaknesses?
14.
An announcement is coming later in October 2022 in relation to Credit Suisse’s emergency restructuring. What do you think this will entail? I think it’s become more public knowledge that the company has already kicked off the sales process for its US asset management unit. Why is disposal occurring there already?
15.
What are your thoughts on Credit Suisse supposedly carving out the IB division into three units? I think the company is looking at disposing the more profitable securitised products group to gain some capital to grow the core business, and have a risky bank that would hold non-core assets that will eventually wind down and then split IB into advisory. However, it could be spun off as well, with the rest within the core business. Does that seem viable to you? What do you think will actually occur?
16.
You said there’s a lot of cross-flow between divisions. Will Credit Suisse still be Credit Suisse if it strips these functions down or away?
17.
What does the future of Credit Suisse’s Asia IB business entail? IB at the company includes both markets and advisory, so could it split up these two functions and spin out the Asia business?
18.
Who are the most likely purchasers of different divisions? I’ve seen interest from sovereign wealth funds and PE houses. Do you think certain types of funds or investors would be more interested in specific branches of Credit Suisse?
19.
What time frame would you expect for deals to be pushed through? How might the uncertain macroeconomic environment play a role in this?
20.
You mentioned you don’t expect a fire sale and that there will likely be bidding for some assets Credit Suisse is trying to carve out. Do you anticipate any haircut to fair value?
21.
I’ve seen planned disposals of other assets, such as the Mandarin Oriental Savoy hotel. Can you see this occurring at a larger scale, or are there any other assets or holdings that make sense for Credit Suisse to divest out of or dispose of?
22.
Do you think Credit Suisse has enough liquid assets to restore confidence?
23.
What is your view on Credit Suisse’s option to exercise the contingent convertible bonds? Could you see a scenario where that needs to happen?
24.
It seems there’s no imminent risk of default. Obviously, Credit Suisse has a similar CET1 [common equity tier 1] ratio to peers such as UBS and HSBC. Do you think current news flow could lead to some kind of bank run, and then the crisis becomes self-fulfilling? After all, the emotionality of markets and the herd mentality play large roles within capital markets.
25.
Do you think Credit Suisse has a clear strategy?
26.
Do you think there’s confidence in Credit Suisse’s CEO, Ulrich Körner?
27.
Why has Ulrich Körner been lacking? Where might there have been some missteps?
28.
Do you think Ulrich Körner is the right person to lead the restructuring, or could there be a replacement in the near future?
29.
Does it always make sense to cut costs and dispose of assets or make divestments? Could it make more sense in some instances to focus on re-energising certain parts of Credit Suisse?
30.
Are there any areas of Credit Suisse that have been overlooked and deserve more light shone on them, in terms of the benefit they’ve provided the company? Could investment into these divisions increase?
31.
There’s been an exodus of top staff at Credit Suisse, with top traders going to compete in bulge bracket banks. Do you think it’s possible for the company to reverse this trend?
32.
Could we expect other executives to leave Credit Suisse in the near future?
33.
Touching on CDS spreads again, they are almost an insurance contract per se. Does the way CDS spreads have been jumping up show that there’s a larger institutional exposure to the company?
34.
Do you think CDS spreads are just another way of viewing how much confidence the market has in a bank? Historically, other banks have had higher CDS spreads. I think Goldman Sachs was above 400bps post-2008.
35.
Credit Suisse is structurally important to Switzerland. In a worst-case scenario, could you see some form of government intervention or central bank support?
36.
If the restructuring goes ahead as planned and is successful, will it be enough to restore some market confidence in Credit Suisse and put it back on the right track?
37.
What will you be monitoring around Credit Suisse?
38.
Is there anything else within Credit Suisse that we haven’t discussed and you think is relevant?
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