It must stop the ‘traders’, reactivate the IPO of the Swiss business and sell the asset management unit
Since the 2008 crisis, no bank chairman has inherited as big a mess as António Horta-Osório will do at Credit Suisse in May. They are two twin crises: Archegos and Greensill.
Although the magnitude is not clear, investors rolled 23% of the value on the stock market in March, which is equivalent to 6.5 billion euros of losses. This could lower its CET1 to 10.7%, compared to its target of 12.5%. You could have to suspend dividends and buybacks or even increase capital.
But the crisis should trigger long-needed reforms. The bank’s business as a whole, many with little relevance to the core, private banking, trade at a huge discount compared to the sum of its parts. Even assuming investment banking is worthless, the rest of the private banking, Swiss unit, asset management and Asian divisions could all be worth $ 32 billion, 41% above current market capitalization.
The first step is to stop the traders. Even before the Archegos crisis, investment banking only had an average return on equity of 9% in the last three years. Going out of business entirely would be difficult, so your best bet is to cut it down massively. This means reducing exposure to prime brokerage and to trading debt, which do not fit well with the core of private banking.
The next step should be to reactivate the much-announced price of the Swiss national business. It could be worth € 13.5 billion over the average earnings multiple of 9.7 times in 2022 for European banks. Lastly, the asset management unit remains small in scale. Its sale to entities such as UBS or Deutsche Bank would allow it to obtain 2,700 million.
These moves would reduce the discount at which Credit Suisse is trading, leaving a slimmer company focused on private banking, with exposure to rapid growth in Asia.
Successive executives and presidents claimed that Credit Suisse was exactly that. Horta-Osório has the opportunity to make it happen.