Credit Suisse Group AG CS -19.52% plans to shed thousands of jobs and raise around $4 billion in fresh capital to fund a retreat from Wall Street transaction processing and trading and try to break away from to recover from an almost existential crisis.
The major overhaul is an attempt to move on from a period of scandal, high losses, executive turnover and dwindling market confidence. It reflects earlier restructurings at Swiss bank UBS Group AG UBS -0.71% and Germany’s Deutsche Bank AG, which have also scaled back investment banking in recent years.
The result will be a leaner bank with around 9,000 fewer employees in three years, with 2,700 employees now being laid off in a first wave of cuts. Credit Suisse shares fell about 18% and suffered the steepest one-day percentage decline in FactSet data since 1985, as investors digested the plan and the dilution of their stock holdings.
The Swiss bank announced on Thursday that it was sharpening the focus of its markets trading business and renaming its capital markets and advisory business an independent entity called CS First Boston in a bid to revitalize a storied US investment banking brand.
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Michael Klein, a veteran banker and board member who helped plan Credit Suisse’s recent pivot, will step down to become chief executive of the new entity. Credit Suisse CEO Ulrich Körner said the unit could be spun off to other investors.
Credit Suisse intends to become “simpler, more stable and with a more client-centric business model,” Körner said in a statement.
The bank confirmed it was ready to transfer its securitized product group — a big deal within the investment bank — to a consortium formed by Apollo Global Management and Pacific Investment Management Co. The Wall Street Journal reported that the sale is imminent on Wednesday.
Credit Suisse said the moves are aimed at channeling more of its wealth and other resources into managing money for the world’s rich, which will remain its core business. The cost base is projected to decrease by approximately $2.5 billion from current levels to approximately $14.7 billion by 2025.
About $1.5 billion of the new shares will be bought by the Saudi National Bank, Credit Suisse said, giving the Saudi bank a stake of up to 9.9%. A rights issue for existing shareholders runs through November.
The National Bank of Saudi Arabia said it could also invest in CS First Boston. Mr. Körner, the chief executive, said the unit has a $500 million funding commitment from a prominent investor he didn’t name, though a spin-off may be years away.
In 2009, Michael Klein became CEO of the renamed Credit Suisse capital markets and advisory unit.
Photo: Andrew Harrer/Bloomberg News
The Saudi bank is mainly owned by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, and another sovereign wealth fund. It has been trying to acquire a foreign bank to bolster its status, a person familiar with the company said.
Qatar, a regional rival to Saudi Arabia, is one of Credit Suisse’s big legacy shareholders, with a stake of around 6% in the bank. Qatar’s sovereign wealth fund began investing in European banks after its inception in 2005 to help invest Qatar’s revenue surplus and diversify its economy from energy.
Credit Suisse estimated the cost of the restructuring at around $2.9 billion over the next two years.
The Swiss bank is reinventing itself after a customer collapse cost it more than $5 billion last year and a series of reputation scandals sent its legal fees skyrocketing. Earnings fell at some key financing and trading firms this year, and in July a new chairman and leadership team said drastic changes were needed.
Credit Suisse tumbled after a client, family office Archegos Capital Management, defaulted in March 2021, inflicting a loss of over $5 billion. The bank was already trying to simplify its business, and efforts were gathering momentum.
Then, earlier this month, a social media frenzy triggered a sharp drop in Credit Suisse’s stock price, leading some clients to withdraw deposits and investments from the bank. Credit Suisse said Thursday the outflows are significantly higher than normal and have yet to reverse.
Between January and September 30, net asset outflows were nearly $13 billion, compared to net inflows of around $30 billion for the same period in 2021.
Still, some other signs of market concern have faded. The cost of insuring the bank’s debt against default, as measured by credit default swaps, fell 2.32 percentage points on Thursday, data from S&P Global Market Intelligence showed, from a peak of 3.75 percentage points earlier this month. This price means that it costs €232 per year to insure €10,000 of the bank’s debt against default.
The return of the First Boston name marks a new chapter in Credit Suisse’s ambitions in the United States.
The bank first joined First Boston in 1978 and took a controlling interest about a decade later. The name was retired in 2006 to have a single brand, but the name still has standing with former employees and customers. The original First Boston was founded in 1932 as an investment arm of the First National Bank of Boston.
The strategy changes coincided with Credit Suisse’s fourth consecutive quarterly loss. The company posted a net loss of about $4 billion in the third quarter, mainly because it had to write down the value of deferred tax assets to reflect strategic plans.
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