Credit Suisse investment bankers are bracing for brutal cutbacks

As someone who has driven vintage Porsches from Beijing to Paris rallies, Ulrich Koerner knows all about being on the course. But Credit Suisse Group AG’s new owner appears to have had enough of the Swiss giant’s investment bank.

The claws are finally closed in Zurich. After years of past chief executives sitting next to a misfiring machine that lost $1 billion in the first six months of 2022, bankers now fear most divisions will catch fire. Credit Suisse’s decades-long battle with Wall Street’s titans for a place among the bulge-bracket investment bank elite is likely over.

Conversations with about a dozen Credit Suisse dealmakers, traders, financiers and asset advisers, who asked to remain anonymous, depict an investment bank preparing for the reckoning. As many as two-thirds of the units could eventually be on the block in the most extreme cases, senior people said. From now on Koerner and chairman Axel Lehman want the firm to become a Swiss bank that amasses wealth for the world’s wealthy and serves the nation’s corporate champions.

One possibility is that the investment bank did not exist as a separate division at some stage, other insiders said, with the remaining parts needed for wealth and asset management and the Swiss bank being merged into those units. More than 30 years after the takeover of First Boston gave Credit Suisse real Wall Street clout, it signaled a historic retreat.

In the early 2010s, Credit Suisse ranked as a top-five global investment bank at one point, according to Bloomberg Intelligence data, with the likes of Goldman Sachs Group Inc. and JPMorgan Chase & Co. taking on the devastating backing of Archagos Capital Management. And Greenseal Capital, two finance firms that blew up spectacularly last year, ended up having a lot of ambitions in that position.

Only the M&A advisory team, which traces its roots to the First Boston deal, appears relatively safe, leaving question marks in fixed income trading, leveraged finance and debt capital markets, as well as equity capital markets. Equity-trading revenue has all but disappeared since the bank pulled out of prime broking last year, which finances hedge funds. The securitized-products unit, which deals in bundled home and consumer loans, is looking for partners backed by bankers from Centerview.

At a recent town hall meeting for Credit Suisse’s global investment bank, banking chief David Miller said management wanted a capital-light and advisory-focused team, according to people in attendance.

“There comes a point where you either have a big investment bank where you can compete with the big players, or you’re too small and so it’s best to get out,” says Vincent Kaufman of the Ethos Foundation, which represents 3%. 5% of Credit Suisse’s voting rights. It’s a view echoed by the largest shareholder: “At some point they have to fix it or find other options,” David Herro of Harris Associates told Bloomberg TV on Friday.

A Credit Suisse spokesperson says: “We will update on the progress of our comprehensive strategy review when we announce third quarter earnings; Any reporting on potential outcomes prior to that is purely speculative.

hard work
The toughest challenge for Koerner and Lehmann is to exit or close the business without racking up bad costs or seriously hurting the company through lost revenue. While activities like securitized debt trading are volatile and eat up a lot of capital, they can provide monster profits. It will also be difficult to find partners or buyers for these units in the current markets.

The Swiss duo needs to successfully navigate boardroom disagreements with investment bankers. Support from their national authorities could help them, say people familiar with the matter.

“The bank really needs to gain stability and customer trust,” says Kaufman. “They revealed this new strategy but its implementation remains to be seen.”

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