Credit Suisse to replicate Asia business model eventually after integration almost tripled income
CEO Tidjane Thiam sees unicorns from Asia - particularly China - as the group’s focus, with growing wealth creation from Asian entrepreneurs
Credit Suisse said it could replicate its Asia-Pacific business model - where it’s organised as an regional entity with its own balance sheet and division head - over time, after the integrated region almost tripled its pre-tax income last year.
“People ask why we invest so much in Asia, and my simple answer is this is the region with 70 per cent of the world population,” the bank’s chief executive Tidjane Thiam said in an interview with the South China Morning Post during the start of its four-day Asian Investment Conference in Hong Kong. “You succeed or you fail, in Asia.”
The Asia-Pacific business of Credit Suisse, led by chief executive Helman Sitohang, accounted for about 29 per cent of the group’s 2.76 billion Swiss francs (US$2.89 billion ) in 2017 pre-tax income, and saw its wealth management, advisory and financing businesses almost tripling in pre-tax income to 820 million francs from 285 million francs in 2015.
But for its Asia ‘markets’ business, which includes the performance of its equities, fixed income and prime brokerage businesses, it sank into a 28 million francs pre-tax loss for 2017, from a profit of 275 million francs in 2016.
“By having one person accountable for Asia, it improves our performance, and this is what we have delivered in Asia, which represents the most accomplished form of our model,” said Thiam.
Asia, particular the explosive growth in mainland China, will continue to be the driver of new wealth creation by entrepreneurs, Thiam said. The unique region-focused model in Asia could be replicated in the wealth management businesses outside Asia and Switzerland, which is the other region-focused, independent unit of the group.
In 2017, Credit Suisse ranked 10th in Asia-Pacific merger and acquisition advisory league table, according to Dealogic’s data, which was down from its 6th ranking in 2016.
Given the rising importance of Chinese technology companies, a country that produced four of the top 10 unicorns – start-ups valued at over US$1 billion – Thiam said he could see bigger pipelines for merger and acquisition from Asian companies, including those from China, over the next three years.
“We rejoice at the success of the unicorns, as we believe they can do a lot for the Chinese and the world economies, we want to support that in every way we can,” he said.
As the world moves out of an era of quantitative easing by various central banks, companies now have had to really improve their business operations rather than relying on easy money, or making the wrong decisions on capital allocations - an environment more conducive to deal-makings.
Such deals are likely to come from sectors that correlate with the growth of some of the Asian emerging markets’ demographics - and Asia’s growing rank of middle class - and those examples include food and health care, retail, consumer market-related technology, culture.
“Disruption as usual” is the theme of the bank’s annual conference this year. In technology, Thiam also shared his views about blockchain, which is said to hold the potential of disrupting the way that the financial industry operates.
He said that Credit Suisse is a supporter of the distributed ledger technology, and is working with other banks and the Swiss Exchange operator, Six, on a joint initiative to improve data quality through better reconciliation enabled by the smart contract, which is a feature under the ethereum blockchain.
At the group level, in February Switzerland’s second biggest bank reported its third year of losses in 2017, at 983 million francs, though narrowing from 2.71 billion francs a year ago, due partly to restructuring-related costs and other losses as it continued to exit from legacy, high-risk businesses.
But Thiam said the outlook for 2018 is brighter, now that the bank is on track to narrowing losses as it enters the final year of its three-year restructure plan implemented since 2015. Stripping out the various goodwill write down related with previous acquisitions, a US$5.3 billion loss related with its legacy residential mortgage-backed securities businesses, and costs related with the group’s restructuring booked over the three years of 2015-2017, Credit Suisse remains a “highly profitable bank”.
“Our restructuring has yielded an outcome which has been both faster and more efficient than the market had expected. In our strategic resolution unit, we have shed, over a period of just two years, approximately 40 billion francs worth of unwanted financial assets. While we will still report some restructuring losses in 2019, these will not be material any more,” said Thiam, adding that the bulk of the restructuring has now been completed.