With Europe’s bank chiefs openly discussing consolidation, it is time for Credit Suisse to dust off an old pitch book – and look across the water, suggests finews.asia.
Merger speculation among Europe’s lenders is almost de rigueur: Deutsche Bank boss Christian Sewing on Sunday signaled he is ready to buy (behind paywall, in German) after a long stint in rehab. Meanwhile, UBS Chairman Axel Weber had consultants chart a potential tie-up with Credit Suisse, its biggest Swiss rival.
As investment bankers refresh their pitch books and merger models, some are thinking bigger: European banks may find a match across the Atlantic. Several big U.S. bank CEOs are desperate for growth, especially in lucrative, steadier wealth management activities.
Thought Experiment
This gives fuel to a thought experiment that was floated to ex-Credit Suisse Tidjane Thiam some time ago: a tie-up of the Swiss bank with Wells Fargo. The U.S. bank, after dragging itself out of several years of scandals, is ready to build its investment bank under CEO Charlie Scharf, «Bloomberg» reported last week.
Wells Fargo is also apparently frustrated with its wealth efforts outside of the U.S.: the bank is winding down its $40 billion business with international clients, of which roughly 80 percent is with Latin American clients, according to «Citywire Americas».
Unfinished Product
Thiam’s restructuring of Credit Suisse is viewed as excellent, and his successor Thomas Gottstein plans to buy back at least 1 billion Swiss francs ($1.13 billion) in shares this year – despite nearly tripling its reserves for a legal spat and kissing off a hedge fund in recent months.
The repurchase, in the midst of a pandemic, comes as central banks and regulators limit payouts. The move appeals to shareholders but masks the fact that Credit Suisse is still considered somewhat of an «unfinished product» in terms of its next big strategic steps. Wells’ international client assets represent a juicy morsel for any major Swiss wealth manager.
Swiss-U.S. Dovetail
Credit Suisse and the U.S. lender are a shockingly tidy fit: the Swiss bank’s wealth arm outside the U.S. complements the San Francisco-based bank’s North American brokerage, while Credit Suisse’s First Boston-rooted investment bank would help Wells realize its capital markets ambitions.
Credit Suisse’s investment bank is far more exposed to the U.S. market than UBS’, for example. It ranks sixth in U.S. fee volume for 2020, according to data from Refinitiv, compared to Wells in eighth place (UBS is in 12th).
Massive Wealth Boost
The American bank could, with Credit Suisse, boost its business with wealthy clients by $400 billion, add the capital markets activities, and a specialized fund management arm. At Wells, Scharf has split the investment bank out and now directly oversees it, and has also earmarked an asset management unit for sale.
At a market cap of $126 billion, Wells could handily gobble up Credit Suisse (worth 29 billion francs at current market prices). Wells brings a heavyweight loan book of more than $920 billion – and deposits of $1.38 trillion, buoyed by retail and small business clientele in the U.S.
Stumbling Blocks
Of course, size isn’t the key stumbling block to the scenario: the «Suisse» is. Credit Suisse’s business at home would need to be ring-fenced to assure Swiss regulators, and any deal would need to be delicately structured to safeguard the cachet that is so key to its brand with the world’s wealthy.
Wells also still has a series of scandals to put behind, as «American Banker» reported this week. The two banks already know each other well, from Wells’ purchase of Credit Suisse’s U.S. private banking arm, in a sale orchestrated by Thiam in 2016.
The CEO handed over to current CEO Gottstein before hitting the next, more strategic phase of growth at Credit Suisse. Incoming Credit Suisse Chairman António Horta-Osório is likely to be more open to international overtures than a purely Swiss team might be. Why not think outside of Europe – and consider a cross-water deal?
