© Stocksak. FILEPHOTO: The headquarters for Germany’s Deutsche Bank are shown in Frankfurt, Germany, September 21, 2019. REUTERS/Ralph Orlowski/File Photograph
Noele Illien and John O’Donnell by Davide Barbuscia
ZURICH/NEW YORK – Credit Suisse chairman Axel Lehmann has revealed a revamp “to rebuild Credit Suisse… as a strong… Bank with a solid foundation, rock-solid, like our Swiss Mountains”. It didn’t take long before the first cracks began to show.
The announcement of the blueprint on Thursday triggered a selloff in the bank’s stock. This sold-off wiped more than 2 Billion Swiss Francs ($2 Billion) off its market value, nearly a fifth its value, and brought its total worth to less 11 Billion Swiss francs.
“You leave with the impression that they were rushed… with a deeply flawed plan,” Goldman Sachs (NYSE) analysts wrote to clients in a note that Stocksak saw. They also noted that the bank’s plan was “short-on detail”.
Similar sentiments were echoed elsewhere. Johann Scholtz from Morningstar said that there is still a lot to be done.
Unusually, FINMA, the Swiss regulator, also kept a guarded tone and said it would keep an eye on the bank as it develops its plan.
Stocksak was informed by FINMA that it will continue to ensure that all supervisory requirements are met during implementation of the new strategy.
Credit Suisse revealed plans Thursday to raise 4 billion Swiss Francs from Investors, reduce thousands of jobs and shift its focus towards its rich clients.
After a difficult few months, the once-respected Swiss institution was suddenly a’memestock’ in the midst of a social media storm.
Credit Suisse claimed that its clients pulled funds in recent week at a rate that led it to breach regulatory requirements for liquidity. This underscores the impact of wild market swings on its health and social media speculation.
FINMA responded to questions about this by saying: “It is evident that a credible plan must be in place for how the buffers will be replenished within a reasonable time.”
CREDIT SUISSE’S PLAN
The bank’s turnaround strategy is complicated and long-winded.
Lehmann, its chairman, wanted to get to the point. Analysts should remember its origins and return the core of our business, he said to them, referring specifically to its wealth management business.
The bank plans to reduce its workforce by approximately 9,000 to 43,000 by 2025 in order to recover profitability following a string of losses and scandals.
It will seperate its investment bank to create CS First Boston. This advisory firm focuses on mergers and acquisitions, and arranging deals on capital market capital markets. It intends to dispose of risky investments.
According to Jefferies analysts, the bank wants to achieve a return of tangible equity of 6% by 2025. This is a key measure for profitability and lags other banks.
The lender also received the backing of Saudi National Bank. It is majority-owned by Saudi Arabia’s government. They will invest up 1.5 billion Swiss Francs in order to acquire a stake up to 9.9%.
Harris Associates, one among the largest shareholders of the bank was optimistic and welcomed the bank’s aggressive approach to improving.
Vincent Kaufmann, head Ethos, who represents shareholders with more than 3% of Credit Suisse stock, was critical of the plan’s incompatibility and the dilution of existing shareholders.
“We are critical about the entry…of a new strategic shareholder, in view of the current value,” he stated. “The new shareholder will get nearly 10% of the capital, for 1.5 billion francs.”
CREDIT SUISSE MUST “DRAW A LINE”
The bank’s most severe crisis is over, and this latest overhaul is the third attempt by successive CEOs to turn around the group.
Lehmann said that everyone knows they need to do this right, while admitting that many were disappointed by the bank. “We must draw a clear line.”
The bank was once a symbol of Swiss reliability. However, it has suffered a series scandals that have tarnished its reputation, including an unprecedented domestic prosecution involving laundering money for criminal gangs.
The bank suffered a loss of $5.5 billion last year from the collapse of U.S. investment company Archegos. It also had to freeze $10 Billion worth supply chain finance funds linked with insolvent British financier Greensill. This highlighted the bank’s risk-management failures.
Its deepening troubles even put it on the radar for day traders this month, when a frenzy involving wild speculation about its health caused its stock price record low.
Reddit and Twitter were mostly silent on Thursday as bank shares plummeted.
Stocksak interviewed analysts and investors, who shared a sense that there was a continuing unease. One shareholder, who asked not to be named, described a “bleak picture overall”.
Chris Marinac (director of research at Janney Montgomery Scott), stated that execution of this task is dependent on economic forces beyond their control.
“If we were in great markets, you could probably give the business some benefit of doubt. It’s Fall 2022 and there is so much uncertainty, it’s really hard. Credit Suisse is swimming in this pond.
($1 = 0.9902 Swiss francs)