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The logo of the Swiss bank Credit Suisse at the Paradeplatz square in Zurich on October 5, 2022. Photo: Reuters.

Credit Suisse pledges commitment to Greater China as it announces US$4 billion capital raise to fund sweeping overhaul

  • The Zurich-based bank plans to raise US$4 billion through a rights issue and selling shares to investors including the Saudi National Bank
  • It is effectively breaking up the investment bank, separating the advisory and capital markets businesses

Credit Suisse Group has pledged its commitment to Hong Kong and mainland China as the Zurich-based bank announced its most dramatic step yet to repair its credibility, unveiling a fresh plan that will see a multibillion-dollar capital raise, a carve out of the investment bank and thousands of job cuts after it posted another huge loss.

“We remain very committed in Hong Kong and Greater China,” said Benjamin Cavalli, chief executive of Credit Suisse’s Hong Kong office. “It has been home to Credit Suisse for a long time. It’s a key pillar of the firm, not just regionally, but globally as well, and it is part of our growth strategy.”

Cavalli himself recently bucked the trend of talent flow, moving to Hong Kong after more than 20 years in Singapore.

“Today’s decisive actions to raise new equity and transform the bank to be stronger, simpler and client-focused will strengthen our Credit Suisse franchise in Hong Kong,, which remains a key wealth management hub and a vital gateway to our thriving Greater China businesses,” Cavalli said.

Axel Lehmann, chairman at Credit Suisse Group, spoke during the Institute of International Finance (IIF) annual membership meeting in Washington, DC on October 14, 2022. Photo: Bloomberg

As part of the plan, Credit Suisse plans to raise 4 billion francs (US$4 billion) through a rights issue and selling shares to investors including the Saudi National Bank, it said on Thursday. It is effectively breaking up the investment bank, separating the advisory and capital markets business and selling a majority of its SPG business to Apollo Global Management and Pacific Investment Management.

The capital raise will capitalise the bank at pro forma common equity Tier 1 ratio, which measures a bank’s capital against its assets of 14 per cent (up from 12.6 per cent), enabling it to grow its Asia-Pacific businesses, Cavalli said.

The overhaul is an urgent attempt to restore credibility at Credit Suisse after a succession of huge losses and management chaos shattered its status as one of Europe’s most prestigious lenders. Chief Executive Officer Ulrich Koerner and Chairman Axel Lehmann, brought in as crisis managers, now face the task of executing the biggest overhaul in the bank’s recent history while protecting the wealth management unit that will determine its future.

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“The new Credit Suisse will definitely be profitable from 2024 onwards,” Koerner said in an interview with Bloomberg Television. “We do not want to over promise and under deliver, we want to do it the other way around.”

Some of the biggest changes will come at the investment bank, including the departure of its head, Christian Meissner and the revival of the First Boston branding. The separate business will include the bank’s historically strong advisory and leveraged finance unit and be lead by Michael Klein, a veteran ex-Citigroup deal maker known for his ties with the Middle East. The carve out will also seek outside capital for the leveraged finance business.

The strategic review came alongside another large quarterly loss as Credit Suisse’s investment bank continued to struggle and wealthy clients fled. The lender posted a net loss of 4.03 billion francs, including a 3.7 billion-franc impairment of deferred tax assets related to the revamp and said the restructuring will cost about 2.9 billion francs until 2024. It will probably record a fourth-quarter loss.

Credit Suisse mulls sale of US asset management unit, Meissner set to exit

The firm will also start headcount reductions of 2,700 positions in the fourth quarter and said that its workforce is set to decline to about 43,000 by 2025, from 52,000 at present. The bank is also seeking to reduce the group’s cost base by 15 per cent, or 2.5 billion francs, by then.

Koerner’s overhaul is the culmination of a three-month strategic review, prompted by a larger-than-expected 1.59 billion-franc loss in the second quarter that spelled the end of the short-lived tenure of CEO Thomas Gottstein. The former investment banker – tapped in 2020 after Tidjane Thiam left because of a spying scandal – presided over financial and reputational hits from the collapses of Archegos Capital Management and Greensill Capital, while overseeing a whirlwind of changes across the management board.

Less than a year ago, Antonio Horta-Osorio, who had successfully turned around Britain’s Lloyds Banking Group, made his own attempt to try and turn around the bank’s fortunes. The then-chairman decided to exit the hedge fund business at the centre of the Archegos scandal and shift about US$3 billion of capital from the investment bank to the private bank. That stopped short of the more dramatic changes that some analysts and investors had imagined.