Swiss banks are generally known for their solidity and predictability. Credit Suisse has offered customers and investors the opposite over the past 18 months. Chair Axel Lehmann can shore things up by halving the size of its accident-prone investment bank and slashing costs. To shrink, he’ll need more capital. The cleanest and quickest way to do that is to tap shareholders.
Lehmann, who is due to unveil his new strategy on Oct. 27, therefore has to take radical steps. One priority is turning the investment bank into a steadier, more “” business focused on dealmaking and fundraising, rather than trading debt securities. Doing so will be expensive. Imagine Credit Suisse winds down credit trading and half of the other fixed-income businesses by putting them into a “bad bank”, leaving behind a smaller unit focused on safer bonds and foreign exchange.
That would only be the start, though. Lehmann has also promised to cut up to $1.5 billion of costs across the group, partly by simplifying its back-office technology processes. Investment banks tend to incur restructuring charges equivalent to three-quarters of the targeted cuts, KBW analysts reckon. That would knock a further $1.1 billion off the bank’s equity.
Finally, putting Credit Suisse on a surer footing means building up a buffer for future litigation or other charges, including any fines or settlements related to collapsed hedge fund Archegos Capital Management and supply chain lender Greensill Capital. RBC pegs total litigation expenses at $2 billion between 2023 and 2025. Add that to the restructuring and bad bank costs, and the total hit to capital would be $4.7 billion.
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