In late June, Credit Suisse was looking to pave a new path for its integrated «one bank» model under a more constrained structure and culture. A little over two months later, it could face even more constraints with a potentially smaller investment bank.
The uphill battle for Credit Suisse's «one bank» model – an integrated business approach involving multiple in-house entities including the private and investment bank – is getting steeper.
This week, the Swiss lender’s board is meeting in Singapore to discuss its strategy review with a focus on key issues including the fate of the investment banking arm. Those reportedly against aggressive downsizing include ex-Citi banker Michael Klein as well as ex-J.P. Morgan banker Blythe Masters.
A notable matter of contention for Credit Suisse is the extent to which it can retreat from capital markets access and trading services without compromising the integrated business for its wealthy clients and its claim to be the «bank for entrepreneurs», as per its marketing slogan.
Deutsche Bank Report
Some of the areas that Credit Suisse’s investment bank could downsize include its businesses in fixed income trading, high yield capital markets and leveraged loans, according to a Deutsche Bank note yesterday by analysts Benjamin Goy and Sharath Kumar Ramanathan.
In fixed income trading, this would impact the broader wealth management client base although many have been increasingly diversified away from single-line bonds into other solutions such as diversified funds or even private credit. But in the case of high yield capital markets and leveraged loans, this could result in a retreat from financing to the bank’s entrepreneurial clients, many of whom are undergoing one of their greatest times of need amid soaring macro risks.
«Capital generation as well as running down businesses take time and are likely more back-end loaded whereas strengthening capital and funding the restructuring require capital up-front,» said the note which underlined a capital gap of at least 4 billion Swiss francs ($4.1 billion) to improve financial strength, fund the restructuring and support growth.
No Easy Decisions
In the context of retaining its capabilities in the one bank approach, there will be no easy decisions this week.
If investment banking cuts are too limited, there is further risk to Credit Suisse’s financial health and shareholder dissatisfaction. But if they are too excessive, the one bank approach could erode from greater reliance on external collaboration and reduced internal synergies. Future business could also be lost from clients seeking universal banks with more comprehensive in-house capabilities.
Re-Reboot
In the event of a material loss of investment banking resources, this will be an immediate hit to morale for Credit Suisse’s integrated bankers who were already operating under new constraints earlier this year.
In late June under ex-CEO Thomas Gottstein, global wealth management head Francesco de Ferrari doubled down on the one bank model during an investor session, highlighting it as a key differentiator for Credit Suisse to attract ultra-wealthy business owners. But it was also noted that this would be done so under a different environment of tighter risk and culture alongside Asian business that was restructured and ceased to be an autonomous, standalone unit.
Prophetic Comments?
Interestingly, de Ferrari’s made comments during the session that may prove to be prophetic as he was already positioning Credit Suisse as a strong player not by the size of the individual divisions within the group but by its ability to collaborate between them.
«If you think of the verticals as business divisions, we are not the largest in any of them but we are, from what I gather from talking to clients, really the best at playing in the space between the verticals,» de Ferrari said during the investor session when describing a presentation slide. «In [the UHNW segment], this is really about doing more of the same and continuing to evolve because competitors don’t sit still.»
Relying on DNA
Regardless of the outcome this week, Credit Suisse has insisted multiple times that the one bank approach is deeply embedded in the Swiss lender and these roots will not easily crumble from a restructuring.
«The bank previously shifted its equities business into global markets business with no slippage in client connectivity or execution,» a source familiar with the matter told finews.asia last November on the impact of the Asia restructuring to the one bank model. «Once you’ve developed this kind of muscle memory, there is no need to give it up.»
«You do not improvise the stuff that’s on this page overnight,» De Ferrari previously said. «We started this journey in 2005 with something called 'the one bank’. 17 years later, we continue to evolve this. This is something that is embedded in the DNA of Credit Suisse. It’s not something you can copy that quickly overnight.»
