Credit score Suisse reins in funding financial institution after a torrid yr By Reuters
© Reuters. FILE PHOTO: The logo of the Swiss bank Credit Suisse can be seen at the headquarters on Paradeplatz in Zurich, Switzerland, October 1, 2019. REUTERS / Arnd Wiegmann
By John O’Donnell, Oliver Hirt, and Michael Shields
FRANKFURT / ZURICH (Reuters) – Swiss credit (SIX 🙂 will rein in its investment bank and put money and staff into a centralized global corporation that powers the world’s rich as it seeks to overcome a series of billions in scandals.
Announcing the restructuring on Thursday, chairman Antonio Horta-Osorio, who came from Lloyds (LON 🙂 Bank in April to get a grip on the Swiss lender, said he was putting risk management and responsibility at the heart of its business .
The second largest bank in Switzerland will all but cease financing hedge funds by shutting down most of its prime brokerage business.
However, the long-awaited reorganization fell short of the major overhaul expected by some investors, and Horta-Osorio admitted that there were no quick fixes and that much remained to be done.
So far this year Credit Suisse has been fined for brokering a fraudulent loan to Mozambique that was hit by the Archegos collapse, tarnished by its collaboration with the late financier Greensill, and reprimanded by regulators for spying on its executives.
The series of scandals has overshadowed the bank, triggered an exodus of key employees and reduced its market value in the billions.
“It’s rather disappointing. A bit of reshuffle, a reorganization here and there and a few exits,” said Jerome Legras of Axiom Alternative Investments. “It doesn’t sound enough when you consider what has happened over the past few months.”
Citi analysts said it was a “modest restructuring” based on growth rather than cost cutting, while Vontobel analysts said it was a development that would likely take years.
To further subdue sentiment, the bank posted a 21% profit decline in the third quarter and expected a loss in the last three months of 2021 as it held roughly 1.6 billion Swiss francs ($ 1.8 billion) in goodwill write off in connection with the investment bank.
The bank’s shares were largely unchanged and underperformed European competitors.
The bank’s exit from prime broking cements its demise as a major player in the hedge fund industry. In 2010, it was ranked the second largest prime broker in the world, surpassing US giants like JPMorgan (NYSE 🙂 and Morgan Stanley (NYSE :).
But a series of leadership changes and risk oversight that were branded “poor” in an independent review culminated in Archegos’ losses that sparked its demise.
The reduced investment bank will focus on advising companies on deals and IPOs as well as trading in cash stocks. Credit Suisse will also cut back lending in emerging markets.
Instead, Credit Suisse wants to sharpen its focus on the world’s wealthy elite.
It plans to hire 500 more private bankers over the next three years, with the goal of managing assets of CHF 1.1 trillion by 2024, compared to CHF 0.9 trillion today.
It will simplify its structure into four divisions: its Swiss bank, a global investment bank, asset management and the new global asset management, which will gradually be allocated more capital at the expense of the investment bank.
Credit Suisse’s financial humiliation is in stark contrast to its cross-city competitor UBS.
After massive losses and a bailout during the financial crisis, UBS has successfully shifted from investment banking to wealth management and is now the largest wealth manager in the world with $ 3.2 trillion in assets under management.
Credit Suisse’s efforts to centralize its operations are based on lessons from recent failures, including Archegos.
Earlier this year, Credit Suisse released a report blaming Archegos’ focus on maximizing short-term profits and enabling “greedy risk-taking” for failing to avoid disaster.
Despite long discussions about Archegos – by far the bank’s largest hedge fund client – Credit Suisse’s top management was apparently unaware of the risks it was taking.
“When Archegos and Greensill happened they were clearly beyond what I thought was acceptable,” said Horta-Osorio. “There is a clear understanding in the organization that things like this shouldn’t happen again.”
($ 1 = 0.9125 Swiss Francs)