Specialist
Former senior executive at Credit Suisse Group AG
Agenda
- Deep dive into Credit Suisse’s (VTX: CSGN) recent strategic announcements
- Restructuring timeline and feasibility
- SPG (Securitised Products Group) and CS First Boston (Credit Suisse First Boston) spin-off developments
- Is this enough to rectify key challenges Credit Suisse is facing?
Questions
1.
In Credit Suisse’s strategic report, the company said that the five key challenges it needed to address were its broad business portfolio, which is partially fragmented, insufficient capital discipline with underperforming non-strategic marginal businesses, inflexible high-cost operating model, recurrence of litigation and reputational issues and a volatile and subpar group and IB [investment banking] returns. In the bank’s Q3 2022 update, it booked around a USD 4bn loss. Do you think this recent update addresses all of the issues above in a way that will tangibly resolve them in the future?
2.
I was reading an analyst report and Credit Suisse was looking at the ROTE [return on tangible equity] target of 6% in 2025 – that’s obviously the lowest target for any European bank, and there are supposedly going to be limited capital distributions between now and then. Do you think many investors will be asking how exciting this opportunity really is? Even with the strategic review, the company is still going to be targeting at a ROTE below peers, essentially.
3.
In your last Forum Interview [see Credit Suisse – Asset Liquidity, Bank Strategy & Break-up Assessment – 18 October 2022], you correctly mentioned that you thought there would be a focus on the wealth management side going forward at Credit Suisse. Do you still think this is the right way for the bank to go with its recent announcement? How do you think clients may perceive this renewed focus on wealth management?
4.
To pick up on the accelerated cost reduction that you mentioned, I think Credit Suisse has selected four levels – it’s non-core, rundown and business de-scoping, so less work in non-core or unprofitable businesses, organisational simplification with fewer people and workforce management at a lower cost, and less of a focus on third-party software and facilities, so you’re buying less for less. Within that, do you think the bank will be able to maintain and attract high talent? To me, reading in between those lines, it looks as if it’s going to try to almost cap some salaries within the workforce. Is it then able to attract the kind of talent that it wants to be able to attract?
5.
In what timeframe do you think we will see the announced lay-offs at Credit Suisse? The bank announced it would cut 9,000 jobs by 2025. That’s a relatively long horizon to do those lay-offs. Do you think we could see a large proportion of that number announced in the coming months?
6.
You said you think Credit Suisse’s lay-offs could impact the quality of service that the bank wants to provide. In which divisions do you think that impact could be seen as being most prevalent?
7.
As a well-placed or experienced banker, you’re in your 40s, you have a wealth of knowledge, why would you go to Credit Suisse if you’re seeing a lot of announced lay-offs and restructuring with its three-year timeline? Do you think people might not be willing to go to Credit Suisse because they’re nervous about future prospects?
8.
What do you think Credit Suisse’s 40% reduction in risk-weighted assets will really look like? How that can impact divisions and clients?
9.
I read that Credit Suisse is proceeding with an expansion in China and Hong Kong. Do you think that makes sense? The CEO of the APAC division, Edwin Low, also noted that the bank is evaluating if it should stay. I think it has 20 or so other locations in and around Asia. Which locations do you think Credit Suisse may look to divest out of?
10.
Do you think more regulatory issues could come to light for Credit Suisse? Has the bank really done enough on the compliance side to prevent anything similar to what we saw in 2020 and 2021 happening again?
11.
Do you think cost cuts could impact Credit Suisse’s ability to continue efficacious management on the compliance side?
12.
If risk appetite controls have changed, do you think it’s possible to show net growth if risk-taking is lower?
13.
Realistically, with Credit Suisse’s revamp, it has given itself until 2025 to show that it’s on the right path for more stable growth. How long do you think this revamp will realistically take? Do you think more needs to be done or are the announcements enough?
14.
In Credit Suisse’s divestment out of its US asset management arm, I’ve seen interest from Janus Henderson, Blue Owl and a variety of other names. Do you think this could cause multiples to be bid up? I think it’s looking as though the bank could fetch around a price tag of USD 2bn.
15.
Do you think it makes sense for Credit Suisse to siphon off its US asset management business? There’s talk that it could be generating a few billion each year in revenue, and that’s something that the bank could be missing out on in the future.
16.
What’s your view on Michael Klein incoming as the new CEO of Credit Suisse’s CS First Boston [Credit Suisse First Boston] spin-off?
17.
Credit Suisse has now agreed to enter into a framework with Apollo and Pimco for its SPG [Securitised Products Group] division. During what timeframe do you think that de-merger could occur?
18.
What do you expect further execution to look like? We’ve touched on Qatar Investment Authority and Saudi National Bank agreeing to subscribe to over one-third of Credit Suisse’s current offering. It’s looking as though there’s going to be a more Middle East focus. Within all of this, S&P recently downgraded Credit Suisse’s debt from BBB to BBB- citing material risks within the franchise. Do you think that’s fair?
19.
Execution risk is an ongoing concern for Credit Suisse. How developed do you think the plan is? The bank’s highlighted several initiatives, it’s given some high-level numbers for the restructuring, but in several areas you could argue the details are still unclear, particularly with the CS First Boston carve-out. It still seems as though it’s in an early stage, and a final bidding agreement is yet to be signed in regards to the SPG sale. Specifics of restructuring charges and gross cost savings are not detailed by division, alongside pro forma profit and losses, and there’s limited detail in the profitability and capital walks. There’s also a lengthy period of time until we get pro forma divisional numbers. Investors are asking why the plan is being presented now when, at this stage, it hasn’t been completed. How can the bank really look to raise capital on this basis, when it can’t be so certain on some of the costs that it’s going to incur?
20.
What do typical sales cycles look like in the wealth management industry for Credit Suisse? How does it typically ebb and flow? Obviously outflows have occurred across most major banks in 2022, as people are being more cautious with the environment we’re entering. How do you expect this to impact the bank?
21.
Wealth management is expected to fall 25% before recovering 23% in 2023 for Credit Suisse, and that’s a consensus estimate. Do you think that’s realistic, given the uncertain environment it seems we’re entering?
22.
How do you anticipate organic growth to evolve for Credit Suisse? Do you think the blue-chip client bases will be receptive to recent announcements?
23.
How sensitive do you think flows are to recent headlines for Credit Suisse? Is there any way that you think you could approach trying to quantify there?
24.
At what pace do you think flows could possibly turn around for Credit Suisse?
25.
What do you think about the Credit Suisse wealth arm in China? Could that be negatively impacted by a weaker yuan and potential rate hikes?
26.
If a recession occurs in China, which could be likely in the near future, alongside western ones as well, how do you think that could impact Credit Suisse’s wealth management?
27.
How do you think Credit Suisse wealth management stacks up against its key competitors? Who does the bank view as its key competitors?
28.
How does Credit Suisse’s wealth management interact with investment banking and other divisions across geographies? How much cross-flow can you still anticipate there being between some of those siphoned-off divisions?
29.
For Credit Suisse there’s been bad news such as weaker trading, banking, wealth and asset management fees and outflows, as well as legal charges. It’s also almost outweighed some bright spots of its business, such as the Asia inflows, advisory fees and it topped its goal of releasing more than USD 3bn of allocated investment bank capital. Do you think there’s going to be some success for Credit Suisse in the next 3-5 years?
30.
Is there anything that’s jumped out to you regarding Credit Suisse’s Q3 2022 strategic update that we haven’t covered?
31.
Is there anything else you’d like to touch on around Credit Suisse?
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