Big European banks lost across the board: Credit Suisse will also give up its first-tier investment bank dream

time:2022-12-09 author:Aerospace stock
Big European banks lost across the board: Credit Suisse will also give up its first-tier investment bank dream

Credit Suisse, which has fought for decades as a top investment bank on Wall Street, is giving up on that ambition after a series of thunderstorms. Conversations with more than a dozen traders, financiers and wealth advisers inside Credit Suisse, who requested anonymity, show the investment bank is preparing for liquidation, according to media reports. In the most extreme scenario, up to two-thirds of the business at Credit Suisse's investment banking unit could come to an end, senior sources said. New group chief executive Ulrich Krner and chairman Axel Lehmann want Credit Suisse to become a Swiss bank that manages assets for the world's wealthy and serves the country's leading companies. One possibility, other insiders said, is that at some stage the investment banking division will cease to function as a separate unit after the remaining one-third of the investment banking business is transferred to wealth management and the banking business is consolidated into several divisions. Department exists. If true, it would mark a historic retreat for Credit Suisse. Credit Suisse really gained leverage on Wall Street more than 30 years ago after acquiring First Boston Bank. Credit Suisse was one of the top five investment banks in the world in the early 2010s, when it competed with Tier 1 banks such as Goldman Sachs and JPMorgan. However, a series of trampling and scandal events in the past three years have made the bank gradually drift away from the dream of a first-line investment bank on Wall Street.

The century-old investment bank continues to experience "bad luck"

This is one of the most turbulent times in Credit Suisse's 166-year history. In 2021, Credit Suisse suffered the "double crit" of the liquidation of Archegos Capital and the collapse of Greensill Capital, causing the bank to suffer billions of dollars in losses, forcing the departure of its investment bank director and chief risk officer, and also opening the bank. The prelude to scaling back the investment banking business. Earlier this year, former chairman Antonio Horta-Osorio, who had only been in office for 10 months, was hastily stepped down for violating epidemic prevention regulations. In June, Credit Suisse was convicted in a lawsuit it allegedly helped drug dealers launder money, becoming the first major bank in Swiss history to be convicted in a criminal case. Immediately after July 27, Credit Suisse’s second-quarter financial report was thunderous, and its profits suffered losses for the third consecutive quarter, with a huge loss of 1.863 billion Swiss francs in the first half of this year. In the first half of the year, the cold winter of U.S. stock IPOs made Credit Suisse’s investment banking business even worse. Credit Suisse is the go-to advisor to special purpose acquisition companies (SPACs), but that craze has subsided. It is also one of the largest providers of leveraged financing to private equity firms, another industry that has struggled recently. In addition, Russia was an important growth market for the bank prior to the Russian-Ukrainian conflict. Ironically, the prime brokerage business that funded hedge funds, which could have been a bright spot for the bank this year, was shut down following the bankruptcy of Archegos, as hedge funds did well. Currently, only the M&A advisory business related to the First Boston deal looks relatively safe, with fixed income transactions, leveraged financing and debt capital markets, and equity capital markets all being questioned.

Investment banking is increasingly a drag

Last November, former chairman Antonio Horta-Osorio proposed a plan to cut costs without slashing investment banking, while avoiding talent loss. The plan didn't work. As was the case in August of last year, many employees are talking in desperation about stalling business and leaving people. But there is also growing concern that the sluggish investment banking business is weighing on the company's other, healthier businesses. At least one of the firm's top 10 wealth clients wants to move money elsewhere. Some worried customers have eschewed long-term products. Even in the better-performing banking sector, top corporate clients have been snatched up by UBS due to reputational damage and rising corporate uncertainty, a unit employee said. "They have four divisions (wealth management, investment banking, Credit Suisse and asset management), and one division's losses offset profits in the other three divisions," said David Herro of investment firm Harris Associates, an executive said. , "The huge loss in the first half of the year was the last straw that broke us." At a recent town hall meeting at Credit Suisse's global investment banking unit, the bank's management reportedly said it wanted to form a capital-light and advisory-focused team. Vincent Kaufmann of the Ethos Foundation, a lobbying group for institutional shareholders representing 3% to 5% of Credit Suisse’s voting rights, said: “At some point, you either have a big investment bank that can compete with the big companies, or you get a bank that is too small, The best company to exit." However, a Credit Suisse spokesman said: "We will provide an update on the progress of our comprehensive strategic review when we report third-quarter results; until then, any reports of potential outcomes are entirely speculative. ” Some wealth management subsidiaries are also unhappy with the generous compensation offered to investment bankers, especially given the uncertain outlook for the sector. While Credit Suisse slashed its 2021 bonus pool by $1 billion, the company has handed out $1.3 billion in retention and one-time bonuses over the past 19 months to discourage employees from leaving. “I don’t think these high retention bonuses for investment bankers are worth it,” Kaufmann said. “Management has to be careful about cutting bonuses where applicable.” Also, Credit Suisse shares have fallen sharply this year, in relative terms. Peers Deutsche Bank and UBS performed better. According to David Herro estimates, the bank's $10 billion to $15 billion in market value losses are attributable to the investment banking unit.

New CEO may lay off investment banking staff in a big way

Credit Suisse's investment banking staff are waiting for the "big axe to fall" as their executives work on another strategic rescue plan. The new chairman, Lehmann, said in a recent interview with the media that there would be a "significant redesign" of Credit Suisse. Former Credit Suisse chief executive Thomas Gottstein is an affable but not bold CEO with a long-standing relationship with Credit Suisse's investment banking division. And the new chief executive, Ulrich Krner, a direct, no-nonsense asset manager known for his willingness to fire employees. During his previous four years as chief operating officer at UBS, the firm shed 16,000 employees. Lehmann and Koerner moved quickly, with Koerner completing his first executive board reshuffle in just a few weeks. Including the appointment of former Bank of Ireland CEO Francesca McDonagh as Chief Operating Officer of Credit Suisse; and the hiring of Dixit Joshi, former Deutsche Bank experienced CFO who helped Deutsche Bank through its own crisis, as Credit Suisse CFO and the appointment of former UBS executive Michael Bonacker as head of transformation, a key position in determining the direction of the job cuts. Their task is quite daunting. While the core capital ratio, a measure of financial health, remains relatively strong at 13.5%, it has been slipping as losses have accumulated. "Credit Suisse still faces three key issues: declining revenue; rising costs; capital adequacy below target," Jefferies' Flora Bocahut wrote in a research note this month. Capital generation is at risk of lower potential profitability and increased litigation costs." "The outlook for Credit Suisse remains particularly bleak against the backdrop of a challenging industry." For Credit Suisse's new executives, the solution is to reduce costs in the medium term. That cut to 15.5 billion Swiss francs ($16.2 billion), well below Gottstein's target of 16.5 billion to 17 billion Swiss francs. Media said the layoffs were overseen by a special board committee led by longtime Citigroup banker Michael Klein. Investment banking head Christian Meissner is helping, though he expects to leave when the assignment is complete. This article does not constitute personal investment advice and does not take into account the particular investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, views or conclusions contained herein are appropriate to their particular circumstances. There are risks in the market, investment needs to be cautious, please make independent judgments and decisions.
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