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With the strategy to boost wealth management, Credit Suisse has gone down a similar path as did UBS. Being a copycat is no longer held against it.

When Tidjane Thiam launched the turnaround of Credit Suisse some three years ago, his plans were met with a fair degree of skepticism. Not all investors were swayed by his plan to raise fresh capital and use the money to grow wealth management much bigger. The reluctance also stemmed from the fact that arch-rival UBS was pursuing a similar strategy – but with a four-year headstart.

Investors were hardly interested in having the choice between two UBS banks, said Alain Dupuis, a French banking analyst, at the time. He’d rather put his money with the original.

Wide Gap

Today, a great many investors beg to differ. The share price of Credit Suisse has added some 8 percent since January, while UBS dropped 3 percent – a gap of more than 10 percentage points. Which suggests that maybe the copy has overtaken the original.

1. Catching Up Potential

The share price of Credit Suisse currently trades at roughly a quarter below its carrying value. But as so often with the value of a company, the discount cuts both ways – now that the pressure on the bank is lifting thanks to the three-year turnaround, the discount suddenly turns into a reason to buy.

«Seeking Alpha», a U.S. industry platform, said there was no major need to do any more restructuring, for the first time since Thiam had assumed responsibility for the Zurich-based bank. With a similar return on equity expected for 2019 (roughly estimated at 8 percent each), Credit Suisse was trading at a discount of 20 percent compared with UBS. Hence, there’s more to gain from an investment in Credit Suisse.

Swiss banking experts agree. Thomas Braun and Georg von Wyss, two experts, recently told «The Market» (behind paywall) that the No. 2 in Switzerland had a greater growth potential than the No. 1. They estimate the fair value of Credit Suisse shares at 20 francs, almost double the current 11 francs.

2. Better Dynamic

Both banks had a fairly tough first quarter 2019, but Credit Suisse fared nonetheless better. Revenues declined 4 percent year-on-year, while rival UBS suffered a drop of 12 percent.

At the crucial wealth management business, Credit Suisse also fared better, with annualized growth of net new money of 5 percent, compared with UBS’ 4 percent. The net margin of international wealth management at Credit Suisse added 1 point to 45 basis points. At UBS, the net margin on investment assets dropped by a fifth to 15 basis points.

Credit Suisse is even closing the gap on dividend payments. For the past years, the bank has lagged its rival and also diluted profit by twice raising extra money. Now, the bank is returning to a policy of paying a traditional cash dividend and also mulls a share buyback worth 1 billion Swiss francs ($1 billion) this year. It will furthermore add a second such program next year.

Investors seem to appreciate the direction of where things are heading – even as UBS still pays a much higher dividend of 70 cents per share, compared with 26 cents paid by Credit Suisse.

3. Legal Risks