As someone who drove the Beijing-Paris rally in a vintage Porsche, Ulrich Koerner knows all about staying on course. But the new head of Credit Suisse Group AG seems to have had enough of the Swiss giant’s investment bank.
The gloves are finally off in Zurich. After years of past chief executives fumbling at the edges of a machine that lost $1 billion in the first six months of 2022, bankers now fear a burnout of much of the division. Credit Suisse’s decades of dueling with Wall Street titans for a place among the elite of big investment banks are over.
Conversations with about a dozen Credit Suisse dealmakers, financiers and wealth advisers, who asked to remain anonymous, describe an investment bank poised for an account. Up to two-thirds of the unit could eventually be on the block in the most extreme case, senior figures say. From now on, Koerner and chairman Axel Lehmann want the firm to be an asset aggregator for the world’s wealthy and a Swiss bank that will serve the country’s corporate champions.
One possibility is that the investment bank will cease to exist as a separate division at some stage, other insiders say, with the remaining parts needed for asset and wealth management and the Swiss bank folded into those units. More than 30 years after the takeover of First Boston gave Credit Suisse real clout on Wall Street, it would signal a historic retreat.
In the early 2010s, Credit Suisse was at one point ranked as one of the top five global investment banks, according to data from Bloomberg Intelligence, after going up against Goldman Sachs Group Inc. and JPMorgan Chase & Co. its disastrous backing of Archegos Capital Management. and Greensill Capital, two financial firms that imploded spectacularly last year, ended most ambitions for that status.
Only the M&A advisory team that has its roots in that First Boston deal looks relatively safe, leaving question marks over fixed income trading, leveraged finance and debt capital markets, and equity markets. Income from stock trading has disappeared after the bank exited last year from prime broking, which funds hedge funds. The securities products unit, which markets packaged home and consumer loans, is looking for partners, assisted by bankers from Centerview.
At a recent town hall meeting for Credit Suisse’s global investment bank, hosted by David Miller, head of banking, management said it wanted a team that was focused on equity and advisory, according to people present.
“There comes a point where you either have a big investment bank with which you can compete against the big players, or you’re too small and therefore it’s better to get out,” says Vincent Kaufmann of the Ethos Foundation, which represents 3% 5% of the voting rights of Credit Suisse. It’s a view echoed by the largest shareholder: “At some point they either have to fix it or look for other options,” David Herro of Harris Associates told Bloomberg TV on Friday.
A Credit Suisse spokesman says: “We will update progress on our comprehensive strategy review when we announce our third quarter earnings; any reporting on possible outcomes prior to that time is entirely speculative.”
The toughest challenge for Koerner and Lehmann will be exiting or closing businesses without racking up devastating costs or seriously hurting the company through lost revenue. While activities such as trading in securitized debt are volatile and capital intensive, they can be monstrously profitable. Finding partners or buyers for these units in the current markets will also be difficult.
The Swiss duo will also have to successfully navigate any boardroom disputes with the investment bank’s backers. Support from their national authorities could help them, people familiar with the matter say.
“The bank really needs to gain stability and customer trust,” says Kaufmann. “They discovered this new strategy, but what remains to be seen is its implementation.”