Credit Suisse is striving to reinvent itself under the most difficult market conditions. The same applies to Deutsche Bank. Both financial houses share a common large shareholder. A partial close alliance can no longer be completely ruled out.

The two banks are going through an existential crisis, and both have the same large shareholder: the ruling family from the oil- and gas-rich emirate Qatar. At Deutsche Bank, Sheikh Hamad Bin Jassim Al Thani currently holds some six per cent of shares. At Credit Suisse (CS), it is Qatar Holding, a subsidiary of the Qatari sovereign wealth fund, which controls more than 18.5 per cent of the capital.

In the sprawling Qatari ruling family, private and state wealth are not so clearly separated. It is clear, however, that Qatar is unhappy with its investments in the two large banks. The German business newspaper Handelsblatt described the sheikh as angry. Not only is he seeing his multi-billion investment in Deutsch Bank melt away, but also the shattered remains of a once-leading investment bank.

Dramatic Changes

For its investors from the Middle East, Credit Suisse was traditionally more than just a financial investment. The bank acted much more like a close business partner. The former head of investment banking Eric Varvel, as well as former CEO Brady Dougan cultivated close relationships with the ruling family and its representative on the CS board, Jassim Bin Hamad J.J. Al Thani.

But the situation has changed dramatically in the past months. The new CS CEO, Tidjane Thiam, is working at a bank that has yet to find its profile internationally: If the Swiss universal bank is one day split, the medium-sized Credit Suisse that remains will no longer be able to play a leading role in asset management or investment banking.

Leading Role is Gone

In Zurich’s financial center, the view is that after a Swiss spin-off, the remaining international Credit Suisse would be ripe for a sale.

At the same time Deutsche Bank CEO, John Cryan, has embarked on radical cost-cutting and is also rigorously clearing up the investment bank. The cuts in the former key discipline are needed.

Takeover or Merger?

Shortly after Thiam revealed his new strategy last November, Günter Käser, co-founder and part-owner of the KK Group (article in German), a long-established Swiss financial research company, wrote: «Want to bet that with this the way is mapped out for a takeover or merger of the ‹International› bank?»

Questions along these lines do not go down well at the control centers of CS, as finews.ch discovered. But speculation about the takeover of Deutsche Bank is more than just doomsaying. Even UBS CEO Sergio Ermotti had to field questions from the media about whether UBS would be interested in this kind of close alliance.

Growth Targets Hard to Reach

However, a union of CS and Deutsche Bank really would be the logical solution. Back in 2014, when Sheikh Al Thani bought in to Deutsche Bank, finews.ch wrote about the not totally far-fetched speculation (article in German) about a merger between the two banks.

Since then the possible drivers of such a large transaction have become more pronounced. More than ever, the changes that are happening in the global finance sector have strengthened.

The growth goals that Thiam and Cryan set themselves in private banking will be hard to achieve in view of the stiff competition and the difficult market environment.

U.S. Banks on the Advance

Trade-oriented investment banking, as practiced by CS and Deutsche Bank, can only be carried out by very well capitalised financial institutions. Considering the present capital weakness of both houses, the prognosis is relatively easy to make. Standing alone, neither of these banks will be able to take on a leading role in investment banking. This is more and more the preserve of the large US banks.

In Europe, as in Asia, these developments are being watched with great unease, because investors want an alternative to Wall Street. And the sheikhs in the Middle East want there to be strong European banks – otherwise they wouldn’t have invested billions in CS and Deutsche Bank.

It is not surprising that Qatar seems to have gradually lost its patience now, given the massive monetary wipe-out sustained in Zurich and Frankfurt. The sheikhs are business people first and foremost and know how to defend and push through their interests.

Back Among the Big Hitters

Therefore it cannot be ruled out that the impulse for a close alliance of the two banks might come from Qatar. Joining forces, after the ensuing slimming down, could well make sense.

The banks would mutually complement each other: With joint asset management for international private clients, the new entity could make a quantum leap and be back among the big hitters in investment banking as a European alternative.