Explainer-Credit Suisse in spotlight ahead of strategy shift

ZURICH (Reuters) – With only days to go before unveiling a major strategic overhaul, Credit Suisse is racing to firm up sales of parts of its business that could reduce the amount of cash it might need from investors.

The embattled Swiss lender is trying to recover from a string of scandals and lawsuits and could embark on a fundamental revamp to slim down volatile investment banking to focus on wealth management.

Analysts estimate it could face a capital shortfall of up to 9 billion Swiss francs ($9.01 billion) — depending on what it does to scale back its investment bank and how much it raises from asset sales — to restructure, support growth and have a safety cushion.

The group is aiming to reassure the market with its restructuring plan, more details of which are expected with third-quarter results on Oct. 27.

Why is credit suisse in the spotlight?

A string of losses, high-profile risk management failures and top leadership changes have put Switzerland’s second-biggest bank under scrutiny.

Credit Suisse had to raise capital, halt share buybacks, cut its dividend and revamp management after losing more than $5 billion from the Archegos collapse in March 2021, when it also had to suspend client funds linked to failed financier Greensill.

A spying scandal forced then-CEO Tidjane Thiam to quit in 2020, and Switzerland’s financial regulator said Credit Suisse had misled it about the scale of its surveillance.

His successor Thomas Gottstein lasted until July 2022, when Credit Suisse turned to restructuring expert Ulrich Koerner as CEO and launched a second strategic review within a year.

Chairman Axel Lehmann took over in January from Antonio Horta-Osorio, who resigned over breaking quarantine rules during the COVID-19 pandemic less than nine months after joining.

Horta-Osario’s predecessor, Urs Rohner, admitted when he left office last year that the bank had disappointed clients and shareholders, and not for the first time.

Credit Suisse’s losses have hit nearly 4 billion Swiss francs over the past three quarters alone, while its financing costs have surged amid credit ratings downgrades.

What assets could it sell?

Credit Suisse has already said it wants to strengthen its wealth management business, scale back its investment bank into a “capital-light, advisory-led” business, and evaluate strategic options for its Securitised Products business.

Last week, it sold an 8.6% stake in Allfunds Group for 334 million euros ($328.4 million). It also sold a 30% stake in Energy Infrastructure Partners for an undisclosed price.

Other assets reported to be up for sale include a stake in the SIX Group, which runs the Zurich stock exchange, two specialist Swiss banks, Pfandbriefbank and Bank-Now, and Swisscard, a joint venture with American Express.

Credit Suisse is looking to sell the Savoy Hotel in central Zurich, which could be worth 400 million Swiss francs.

The bank’s U.S. asset management unit may fetch around $2 billion in a sale, sources have said, and is said to be drawing interest from money managers such as Janus, Blue Owl and others.

The bank is also considering spinning off part of its advisory and investment banking business, which could bring in outside investors and be named First Boston, media have reported.

What other money raising options are there?

The bank had approached investors about a capital injection, sources familiar with the matter have said.

Credit Suisse is reported to have hired Morgan Stanley and Royal Bank of Canada to help organise a capital increase to underpin its finances and secure funds for restructuring.

A convertible bond issue is another avenue the Swiss bank is said to be considering to help finance its turnaround plans. This could allow the bank to limit the sale of shares at depressed current prices.

As a last resort, Credit Suisse could seek state aid.

How important is the bank?

Since its foundation in 1856, Credit Suisse has played a central role in the history and development of Switzerland. It was set up by Swiss politician and businessmen Alfred Escher to finance the country’s railways and support industrialisation.

Through a series of mergers and acquisitions, it has grown to become the second-biggest bank in Switzerland and one of the biggest banks in Europe.

It had just over 50,000 employees and 1.6 trillion Swiss francs in assets under management at the end of 2021.

Credit Suisse has a domestic Swiss bank, plus wealth management, investment banking and asset management operations.

The Swiss National Bank has designated it one of Switzerland’s global systemically important banks, whose failure would cause “significant harm to the Swiss economy and financial system”.

($1 = 0.9986 Swiss francs)

(Reporting by Michael Shields, John Revill and Noele Illien; Editing by Alexander Smith and Jane Merriman)