Credit Suisse launches radical overhaul to stabilise bank

Credit Suisse announced a series of radical measures on October 27, 2022 aimed at turning around the beleaguered bank following huge third quarter losses, including revamping its investment banking unit, 9,000 job cuts and raising fresh capital.

Switzerland’s second-biggest bank launched a strategic review aimed at putting an end to a series of scandals that have shaken the institution, saying the results were intended to create “a simpler, more focused and more stable bank”.

The Zurich-based bank revealed it was going for a “radical restructuring” of its investment bank, an accelerated cost-cutting effort, and strengthened and reallocated capital, “all of which are designed to create a new Credit Suisse”.

The bank intends to raise capital worth four billion Swiss francs ($4 billion) through the issuance of new shares to qualified investors, including Saudi National Bank, which has committed to invest up to 1.5 billion Swiss francs to achieve a shareholding of up to 9.9%.

“Over 166 years, Credit Suisse has built a powerful and respected franchise but we recognise that in recent years we have become unfocused,” chairman Axel Lehmann said in a statement.

He said the reassessment of the bank’s future direction included “a radical strategy and a clear execution plan to create a stronger, more resilient and more efficient bank with a firm foundation, focused on our clients and their needs”.

Lehmann said the bank will also work on further improving risk management and control processes across the entire bank, after a series of investments turned sour.

“I am convinced that this is the blueprint for success, helping rebuild trust and pride in the new Credit Suisse.”

‘Simpler, more stable’ bank

Credit Suisse also said expects to run the bank with approximately 43,000 staff by the end of 2025 compared to 52,000 at the end of September, “reflecting natural attrition and targeted headcount reductions”.

The announcement came as the bank unveiled a third quarter net loss of $4.034 billion Swiss francs.

“This is a historic moment for Credit Suisse. We are radically restructuring the investment bank to help create a new bank that is simpler, more stable and with a more focused business model built around client needs,” new chief executive Ulrich Koerner said in a statement.

Koerner is considered a specialist in bank restructuring and has had a hundred days to diagnose the problems at Credit Suisse.

The announcement was keenly awaited by analysts, rating agencies, banking regulators and regular customers.

Sluggish market

The market backdrop to Thursday’s announcement was not particularly buoyant.

In the third quarter, high market volatility caused by Russia’s war in Ukraine, combined with recession fears, dampened demand for transactions such as debt issues, initial public offerings as well as mergers and acquisitions.

And on Tuesday, Switzerland’s biggest bank UBS, like the major U.S. investment banks, reported a drop in income in its investment bank arm.

Credit Suisse’s capital-guzzling investment banking arm has been the source of heavy losses which plunged Credit Suisse’s accounts into the red — eclipsing its other, more stable activities such as wealth management or its Swiss domestic banking services.

Credit Suisse’s investment bank suffered a loss of 3.7 billion Swiss francs in 2021 and backed that up with a 992 million Swiss franc loss in the first half of 2022.

It was hit by the implosion of the U.S. fund Archegos, which cost Credit Suisse more than $5 billion.

Meanwhile its asset management branch was rocked by the bankruptcy of British financial firm Greensill, in which some $10 billion had been committed through four funds.

Credit Suisse is one of 30 banks globally deemed too big to fail, forcing it to set aside more cash to weather a crisis.

Banking experts are therefore dismissing social media rumours earlier this month of a “Lehman Brothers moment”, referencing the U.S. bank which collapsed, triggering the 2008 financial crisis.

While many industry experts think a bankruptcy highly improbable, these rumours helped drag its share price down to a low of 3.158 Swiss francs.

Credit Suisse shares closed Wednesday at 4.763 Swiss francs on the Swiss stock exchange’s main SMI index.