The China Mail - Credit Suisse banking on restructure revamp

The pressure is on for Switzerland's second-biggest bank after investors saw their money go up in smoke due to the collapse in share prices.

And the fragile economic outlook, recent market turbulence and rising interest rates could further complicate Koerner's task as he reveals his restructuring plan.

- Pillar of Swiss banking -

With a turnover of nearly 22.7 billion Swiss francs ($22.65 billion) in 2021, Credit Suisse is second only to UBS in Swiss banking.

But unlike its competitor which earned a net profit of $7.4 billion, Credit Suisse suffered a loss of 1.6 billion francs.

Founded in 1856 by Alfred Escher, the pioneer of Swiss railways, the bank then called Schweizerische Kreditanstalt grew to be a pillar of Swiss finance.

It financed the construction of the Gotthard tunnel, the development of large industrial companies and also insurance giants, including Swiss Life and the reinsurer Swiss Re.

The Zurich-based bank is a force on the international stage, especially since it took over the US investment bank First Boston in 1990. Present in some 40 countries, it employs 51,410 people worldwide.

- Too big to fail? -

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

At the end of June, its CET1 ratio -- which compares a bank's capital to its risk-weighted assets -- stood at 13.5 percent: slightly less than HSBC Holdings but bigger than BNP Paribas, the two largest banks in Europe for which regulatory requirements are even higher.

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

"The bank will go through difficult times," Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, told AFP, but "not because of a solvency risk or liquidities".

Credit Suisse already went through a major restructuring under Tidjane Thiam, its chief executive from 2015 to early 2020.

The objective was to relieve the investment bank of its most volatile activities and to strengthen wealth management, through capital increases of six billion and then four billion Swiss francs.

In November 2021, another reorganisation was launched after a series of scandals that tarnished its reputation.

- Four divisions -

Since then, Credit Suisse's activities have been split into four divisions: wealth management, asset management, Swiss banking, and its investment banking arm.

Wealth management -- specialising in investments for rich clients -- and Swiss banking -- encompassing retail banking and other domestic activities -- are considered the most stable.

In the first half of 2022, wealth management, which makes up 30 percent of the bank's income, suffered 1.4 billion Swiss francs in capital withdrawals, mainly from European and Middle Eastern clients.

Swiss banking, which represents about a quarter of Credit Suisse's turnover, was the only division to see its income increase.

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

Meanwhile investment banking was hit by the implosion of the US fund Archegos, which cost Credit Suisse more than $5 billion.

While asset management accounted for only about eight percent of Credit Suisse's revenue in the first half of the year, investment banking contributed 37 percent.

In the first six months, the investment banking division, which is active in fields including debt issues and mergers and acquisitions, racked up losses of 992 million Swiss francs after a loss of 3.7 billion francs in 2021.

Investors have long called for reform of the division, believing that it does not have the heft to take on the big US banks.

In 2011, the Ethos foundation, which represents pension funds in Switzerland, firmly opposed an issue of convertible bonds aimed at strengthening the branch, judging the investment banking arm too capital intensive.

J.Thompson--ThChM