LONDON (Reuters Breakingviews) – The crisis at Credit Suisse is not as existential as that at Deutsche Bank a few years ago. However, new leader António Horta-Osório faces a tougher compromise on a key issue. He must choose between strategic logic and current returns.
Like the German lender in the years after 2016, Credit Suisse has had to raise capital and is losing bankers. The latest departure came on Wednesday with reports that M&A chief Greg Weinberger is joining Morgan Stanley. However, Credit Suisse has a highly profitable $25 billion wealth management business to fall back on and its survival is in no doubt. The cost of insuring the bank’s debt against default is lower than it was in mid-2020, despite the collapse of clients Greensill Capital and Archegos Capital Management.
Horta-Osório still has a problem. Deutsche revived itself under CEO Christian Sewing by abandoning strategically superfluous units like equity trading and concentrating on strengths like making markets in European bonds and FX. These deals also fit well with the needs of its key German corporate clients.
Credit Suisse isn’t so lucky. The biggest part of the investment bank is fixed income sales and trading, which accounted for 40% of the unit’s revenue last year. It aligns poorly with the broader group’s core business of managing the fortunes of multimillionaires and billionaires who have little use for a huge corporate debt trade. Other specialist investment banks such as leveraged finance and dedicated acquisition vehicles are primarily focused on the US, a region where the group’s private bank has little presence. No wonder less than one-fifth of Credit Suisse’s investment banking revenues are directly related to its core wealth division, according to Bank of America.
That’s a headache as Horta-Osório conducts a strategic review. Ideally, he would double down on wealth management across Europe and Asia by trimming the less relevant US portions of the investment bank. That could earn it a higher valuation multiple: pure-play private banks trade at a premium to tangible book value, compared to Credit Suisse’s 40 percent discount. But it would also mean divesting the investment bank’s most valuable teams, yielding returns and making a turnaround more expensive.
Horta-Osório doesn’t have to worry about a bankruptcy of Credit Suisse. But his investment banking conundrum is much more of a head-scratcher.
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– According to press reports on June 16, Morgan Stanley has hired senior investment banker at Credit Suisse, Greg Weinberger. Weinberger was most recently Head of Mergers & Acquisitions at the Zurich lender.
– Credit Suisse is providing retention bonuses to certain executives and other senior executives amid a rising trend of resignations, Bloomberg reported on June 9, citing people familiar with the matter.
– The company’s share price fell 28% between March 1 and June 16, impacting the value of stock-based compensation.
– Other recent departures include Armando Rubio-Alvarez, head of the company’s financial institutions franchise in Europe, Middle East and Africa, joining Jefferies, Reuters reported.
– Reuters customers can click for previous columns by the author [PROUD/]
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