It's been a long wait, but Credit Suisse (CS) finally disclosed its plans aimed to give the bank another chance.
The Swiss bank, which was one of the European financial jewels, is now a shadow of what made it great. Blame it on an endless series of scandals that cost billions of dollars and tarnished its reputation.
Less than a year ago, former Chairman Antonio Horta-Osorio tried to reboot the machine by abandoning the hedge-fund activities at the heart of the Archegos scandal and redirecting about $3 billion of capital from the investment bank to the private bank.
But markets and analysts felt he hadn't gotten far, despite his reputation as a bank savior. Horta-Osorio had notably turned around the British bank Lloyds Banking Group.
'This Is a Historic Moment for CS'
On Oct. 27, it was the turn of the new CEO, Ulrich Körner, and the new chairman, Axel Lehmann, to unveil their emergency plan to revive the 166-year-old firm.
"This is a historic moment for Credit Suisse," Körner said. "We are radically restructuring the investment bank to help create a new bank that is simpler, more stable and with a more focused business model built around client needs."
Their overhaul includes cutting costs by 15%, or 2.5 billion Swiss francs ($2.52 billion). Credit Suisse expects 1.2 billion Swiss francs in cost reductions in 2023. The bank is targeting a cost base of 14.5 billion Swiss francs by 2025.
One of the measures to achieve this is to cut jobs. A headcount reduction of 2,700 full-time equivalent employees, or 5% of the company's workforce, is already underway in the fourth quarter.
In total, the firm will eliminate 9,000 jobs in three years, which amounts to a 17% workforce reduction. Credit Suisse expects to run the bank with 43,000 employees by the end of 2025, compared with 52,000 at the end of the third quarter.
Measures that are already underway include a targeted 50% reduction in consultancy spend and a 30% reduction in contractor spend, with the benefits expected in 2023, the company said.
Investment Banking Separation
The Swiss bank has also decided to completely restructure the investment bank, which once was its profit engine but has become the source of many of its problems. It will split the investment bank into several entities. The aim is to root out risky market activities, which are also among the most lucrative.
One of the entities will be The Markets, whose purpose will be to continue to provide trading capabilities and other market-related products for its wealthy clients in the Wealth Management department, the Swiss Bank and for institutional investors.
Credit Suisse is also creating CS First Boston, an entity that will become independent over time and will concentrate on advisory and capital-markets activities. The group resurrected the name of the American bank it acquired several years ago to compete with Goldman Sachs and Morgan Stanley.
Credit Suisse will sell a "significant portion" of its securitized-products group business to Apollo Global Management (APO) and Pacific Investment Management, broadly known as Pimco.
The firm will also create a capital-release unit, to which it will transfer the nonstrategic assets that it intends to sell or wind down over time.
"Credit Suisse seems to be wanting to put a line under concerns by wealth management clients," commented JPMorgan Chase analyst Kian Abouhossein in a note to clients.
"Material questions remain to assess well the outcome of the [investment bank] restructuring, which is relatively more complicated to what we witnessed in the case of UBS and Deutsche Bank."
Can Credit Suisse Execute?
The revamp will translate into an impairment charge of about $3.73 billion.
To finance this restructuring, the bank will raise 4 billion Swiss francs ($4.04 billion) by issuing new shares to qualified investors, including Saudi National Bank, which has committed to invest up to 1.5 billion Swiss francs, and through a rights offering for existing shareholders.
Saudi National Bank, which is state-owned, will hold a 9.9% stake in the firm, which will make it one of the main shareholders of Credit Suisse.
In addition, the bank will pay only a "nominal" dividend over 2022-2024, before returning to the payment of "meaningful" dividends from 2025 onward.
The plan did not immediately convince the markets. Credit Suisse American depositary receipts fell nearly 18% at last check.
The turnaround promises to be a daunting task. The results for the third quarter, also published on Oct. 27, show that things are going to be complicated.
Credit Suisse posted a net loss of 4.03 billion Swiss francs ($4.07 billion) against net income of 434 million Swiss francs ($438 million) in the third quarter of 2021.
The other question is whether Credit Suisse can execute this plan in the current macroeconomic environment.