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Credit Suisse Unifies Wealth Arms, Cuts Risk Exposures

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The bank, beset by a number of problems stemming from losses in earlier months, is slimming down its investment banking operations, melding wealth arms into a single structure, and exiting “non-core” markets. It also announced third-quarter results today.

Credit Suisse, which announced third-quarter financial results today, has been through a series of jarring losses. It has announced that it is unifying all its wealth management businesses, aiming to reach about SFr1.1 trillion ($1.2 trillion) of assets under management by 2024, up from SFr200 billion from now. The bank said it also plans to exit 10 “non-core” wealth management markets.

The firm is slimming down parts of its investment bank to reduce risk exposures and capital, quitting prime services – with certain exceptions.

“The measures announced today provide the framework for a much stronger, more client-centric bank with leading businesses and regional franchises. Risk management will be at the core of our actions, helping to foster a culture that reinforces the importance of accountability and responsibility. We will invest to grow our top-line by shifting approximately SFr3 billion of capital to our wealth management business and through additional technology and other investments amounting to around SFr1 to SFr1.5 billion per year by 2024,” António Horta-Osório, chairman, said.

The Zurich-listed bank said that beginning from January 2022, it will be reorganised into four divisions – wealth management, investment bank, Swiss bank and asset management – and four geographic regions – Switzerland, Europe, Middle East and Africa, Asia-Pacific and the Americas.

The globally-unified wealth management division is expected to “accelerate growth,” Credit Suisse said, with an increase of about 25 per cent in allocated capital by 2024, while “aligning client segmentation, product offerings, platforms and technology, and leveraging global capabilities through a best-in-class integrated model across all regions.”

The group, which is Switzerland’s second-largest banking group after UBS, has been through a difficult period, suffering losses, as reported earlier this year from the Greensill and Archegos sagas, and more recently, in connection with Mozambique. Consequently, there have been C-suite changes.

Shares in the group were little changed on the day at SFr9.89 per share, as of 10 am Switzerland time. 

The bank expects about SFr400 million of restructuring costs linked to business exits, compensation normalisation and Archegos remediation activities between the fourth quarter 2021 and 2022. 

In its results today, the bank reported net income, attributable to shareholders, of SFr434 million in the third quarter of 2021, down 21 per cent year-on-year. Net revenues rose 5 per cent to SFr5.437 billion; provision for credit losses swung into a net release of SFr144 million, as economic conditions improved. On an adjusted basis, excluding significant items and the Archegos impact, the bank logged a 25 per cent year-on-year rise in pre-tax income, at SFr1.362 billion.

Core and non-core
The wealth management division plans to expand its ultra-high net worth and upper-HNW and “accelerate core HNW growth in selected scale markets,” the bank said. 

“We plan to exit approximately 10 non-core markets. The division expects to hire approximately 500 relationship managers over the next three years, which represents an increase of about 15 per cent from 2021 to 2024. Investments in technology are expected to increase by approximately 60 per cent in 2024 versus 2021,” it said. 

“This growth strategy is expected to deliver incremental recurring revenues of at least SFr1 billion by 2024 combined with growth in transaction-based revenues. The 2024 ambition is to exceed a return on regulatory capital of 18 per cent on an adjusted basis, excluding significant items, and grow net new assets by a mid-single digit p.a.,” it continued.

Investment bank
Credit Suisse said that in its investment banking arm, it plans to “further pivot to capital-light capital markets and advisory businesses, and continue to leverage its market-leading credit, securitized products and leverage finance businesses, while further growing global trading solutions (GTS) connectivity with wealth management.”

The investment banking division plans to exit prime services (with the exception of businesses called Index Access and APAC Delta One), “optimize” its corporate banking exposure and cut the long-duration structured derivatives book, while quitting about 10 non-core GTS markets without a wealth management “nexus.”

Credit Suisse said this will help to drive an expected capital reduction of about 25 per cent – or about $3 billion. “This will enable the investment banking businesses to be an even stronger strategic partner to the bank’s core corporate, entrepreneurial, UHNW, institutional and financial sponsor clients. With these measures, a return on regulatory capital of over 12 per cent on an adjusted basis excluding significant items, is being pursued for 2024,” Credit Suisse said.

Swiss bank
The group said its Swiss Bank division will include the domestic retail, corporate and institutional client segments as a business. “Our 2024 ambition is to exceed a return on regulatory capital of 12 per cent on an adjusted basis excluding significant items and grow client business volumes at low- to mid-single digit over 2022 to 2024,” it said. 

Asset management
Credit Suisse said it will concentrate on investing in core product capabilities, on expanding distribution in select European and APAC markets, and building strong links with the wealth management arm. The asset management division plans to exit “non-core” investments and partnerships, which is expected to result in a cut of 40 per cent of risk-weighted assets over 2021-2022.

“Our 2024 ambition is to exceed a return on regulatory capital of 45 per cent on an adjusted basis excluding significant items and net new asset growth of over 4 per cent p.a.,” the bank said. 

Regions
Credit Suisse said its global divisions will be complemented by four regions namely, Switzerland, EMEA, APAC and the Americas, to drive cross-divisional collaboration and strengthen legal entity management oversight and regulatory relationships at a regionally-aligned level.

Asia
“In the APAC region, the bank has a unique opportunity to capture growth from our leading position there. This includes investing in its Mainland China franchise, centred around the bank for entrepreneurs model, building on our leading Singapore and Hong Kong hubs and further leveraging investment, financing, advisory and capital markets solutions,” it said. 

The bank said it has achieved a Common Equity Tier 1 ratio of 14.4 per cent in the third quarter of 2021, helped by a large cut to risk-weighted assets, and improving its capital strength.