Credit Suisse has drawn up plans to split its investment bank in three and resurrect a “bad bank” holding pen for risky assets, as the Swiss lender attempts to emerge from three years of relentless scandals.
Under proposals put forward to the group’s board, Credit Suisse hopes to sell profitable units such as its securitised products business in a bid to stave off a damaging capital raise, according to people familiar with the plans.
Chair Axel Lehmann installed Ulrich Körner as chief executive in the summer with a brief to carry out a radical shake-up of the bank, which has been hit by a corporate spying scandal, investment fund closures, a record trading loss and a litany of lawsuits in recent years.
The board and executive team are planning to unveil the new strategy — which is expected to include thousands of job cuts — at the bank’s third-quarter results on October 27.
The latest proposals under consideration would see the investment bank divided into three parts: the group’s advisory business, which could be spun off at some later point; a bad bank to hold high-risk assets that will be wound down; and the rest of the business.
“We have said we will update on progress on our comprehensive strategy review when we announce our third-quarter earnings,” Credit Suisse said in a statement. “It would be premature to comment on any potential outcomes before then.”
At an internal town hall this month, Credit Suisse directors Michael Klein and Blythe Masters suggested the company could offer investment bankers an equity stake in the business, which was viewed as heralding a spin-off of the division. The idea was first reported by Bloomberg, which has also said the board is considering rejuvenating its First Boston brand for the investment bank.
While both ideas have been floated, they are not viewed as a priority, according to the people with knowledge of the board’s thinking.
The board has discussed reviving the strategic resolution unit to bring together high-risk assets and non-core businesses that do not fit with its new strategy of focusing on wealth management, say the same people.
The SRU — which was used during a previous strategic realignment under former chief executive Tidjane Thiam — would allow the bank to wind down problematic positions and also hold businesses, such as the securitised products unit, which have been earmarked for disposal.
A sale of the New York-based securitised products business — which packages up debts such as mortgages and loans for yachts, then sells them on as securities — would reduce the bank’s capital commitment but also deprive the bank of one of its most profitable business lines.
Last month, analysts at Deutsche Bank said the costs of paring back the investment bank would leave a SFr4bn ($4bn) hole in the group’s capital position due to restructuring costs, growing other business lines and strengthening its capital ratios.
“Running down other parts of the investment bank and selling smaller businesses across divisions could help over time, but this would likely come too late to avoid an equity raise,” wrote Deutsche analysts Benjamin Goy and Sharath Kumar Ramanathan.
But according to people involved in internal discussions, the bank’s hierarchy is desperate to avoid going to the market for funding given the group’s depressed share price, which has fallen below SFr5 in recent weeks, its lowest level for at least 30 years. The bank trades at a price to book value, a measure of net assets, of 0.28, significantly below its rival UBS, which trades at 1.
Last month, Credit Suisse was hit by a series of downgrades by credit analysts, which raised its borrowing costs.
The bank is also finalising plans for thousands of job cuts, which could affect more than 10 per cent of its 45,000 global workforce, according to people with knowledge of the plans.