A European hedge fund manager wants to split up Credit Suisse. The idea isn't new, but credible. The activist investor cannot lose with this efforts. finews.asia explains why.

Rudolf Bohli is at it again: the manager of Zurich-based RBR Capital Advisors has attacked Credit Suisse head-on. The hedge fund manager's goal? Split up the bank into three parts – an investment bank, an asset manager and a wealth manager.

What's in it for Credit Suisse shareholders? Parts that are worth more than their sum, more efficient and powerful. Early «exclusives» on the plans in several media outlets have already taken hold: the bank's stock traded higher on Tuesday.

Bohli's Approach

The approach by Bohli is one that he honed with at asset manager GAM earlier this year. Formerly Bank Bellevue's chief analyst, Bohli scours for undervalued turnaround firms.

Step two is to propose more radical restructuring measures than management had. Then, with a modest financial engagement, Bohli begins building a stake – 0.2 percent at Credit Suisse currently – and attempts to marshall support among frustrated shareholders for the plan. 

Armed with backing from others, Bohli then confronts the company's management and board, unleashing a flurry of attention. After the shares have risen, Bohli exits at a profit.  

Swiss Bias

Four characteristics of Bohli's approach: he suffers a major home bias. Credit Suisse is the third Swiss firm to be publicly attacked by RBR, after airline caterer Gategroup in 2015 and asset manager GAM earlier this year.

Secondly, Bohli doesn't look for impossible targets. Gategroup was fertile ground for a radical restructuring after years of scandals and poor management. At GAM, Bohli snapped up a stake after CEO Alex Friedman has already begun to restructure, but the company's turnaround hadn't yet been acknowledged by stockholders in its share price.

Taken a Beating

Credit Suisse is in a very similar situation: CEO Tidjane Thiam has largely concluded a torturous two-year restructuring and investors expect decent third-quarter results. Some investors are still hesitating, waiting to see sustainable results of the French-Ivorian executive's turnaround.

Third, Bohli's targets appear vulnerable: board and executives have taken a beating, be it over poor management or high compensation – or both. Stock valuation is usually low, and the aggressive activist can win moral support for this efforts.

Modest Influence

Fourth, Bohli lets himself be referred to as a company raider, but his actual influence on his target companies is modest. At GAM, for example Bohli wanted to replace chairman and CEO, but only achieved an evaluation of the asset manager's compensation model.

He has little hope of achieving this at Credit Suisse. His vaguely-outlined plan isn't a stroke of genius; instead, it echoes what other hedge funds and shareholders have already called for at Swiss universal banks.

UBS in particular has been asked for years to split its riskier investment banking activities from its rock-solid private bank in order to win more value. Swiss financier Martin Ebner attempted this in the 1990s, renowned private banquier Konrad Hummler also tried when the financial crisis erupted before running into his own trouble. He was followed by Luqman Arnold, a former UBS CEO turned hedge fund investor, and most recently hedge fund Knight Vinke.

Major Opposition

None of them succeeded. Why? Certainly not because splitting up UBS made no sense – in fact, the opposite was true. The claims and demands on UBS foundered because big institutional investors failed to support them.

The pattern will repeat itself at Credit Suisse – in fact, major U.S. investor David Herro of Harris Associates has already slammed Bohli's efforts (behind paywall). To be sure, it is remarkable that Credit Suisse's former investment bank co-head, Gaël de Boissard, is supporting the plan, but it won't materially change the outcome.

Credit Suisse's major shareholders – Harris, Qatar's sovereign wealth fund, Saudi Arabia's wealthy Olayan family, Blackrock and Norwegian sovereign wealth fund Norges – have helped inject 10 billion Swiss francs into the Swiss bank in the last two years. With their support of Thiam's two cap hikes, the big institutional shareholders could not have been clearer in their support for his strategy at the bank.

Bank's Heavy Lifting

To be sure, Bohli doesn't actually need Dave Herro, Yngve Slynstad, or Larry Fink on his side: his opportunistic approach will take root with unsatisfied Credit Suisse shareholders are as opportunistic as the activist is. In this respect, Bohli's approach was successful at Gategroup as well as at GAM.

Credit Suisse's stock will rise in coming weeks as the activist details his plans and begins canvassing other shareholders with investor presentations of his plans. The bank itself, in bringing its restructuring and recapitalizing to a close, is doing the heavy lifting. Bohli has already won with his efforts at Credit Suisse, and will exit the stock in several months when he can show a respectable profit for his troubles.