With its new strategy, Credit Suisse management wants to create clarity on how the crisis-ridden bank will navigate the next three years. But it is not even apparent how exactly it will get through this year.
It sounds more like a hopeful prayer than a strategy: «The Group’s actual results will depend on several factors including the Investment Bank’s performance for the remainder of the quarter, the continued exit of non-core positions, any goodwill impairments, and the outcome of certain other actions, including potential real estate sales,» Credit Suisse said in its fourth-quarter outlook published today.
So an equation with at least four variables will determine whether the expected loss will be 1.5 billion francs ($1.6 billion). Or less. Or more.
Share Price Lower Again
Above all, it is uncertain whether Credit Suisse can staunch the outflow of client assets by the end of the year. About 84 billion francs were withdrawn across the group between the end of September and November 11. The core business with wealth management lost every tenth customer franc, a total of more than 63 billion francs headed for the exits, almost ten times the 6.4 billion francs in net outflows the division reported in the previous third quarter.
If anything, the hemorrhaging in the core business appears to be accelerating. The bank warned of «subdued» client activity in wealth management, and that difficult market conditions are likely to persist in the months ahead. After the brief moment of clarity following October's new corporate strategy, the share price of Switzerland's second-largest bank drifted into the fog, at times falling by more than 5 percent in morning trading. This means that the shares have lost more than a tenth of their value within a week alone. Hardly a ringing market endorsement.
Hundreds of Millions for Restructuring
That a large majority of shareholders approved Credit Suisse carrying out two capital increases cushioned some downward pressure. After all, the bank will have around 4 billion francs in fresh funds to strengthen its capital base and finance its costly restructuring, a project that will cost the bank 250 million francs by the end of the year alone.
«Today’s vote by shareholders marks a further important step in our journey to build the new Credit Suisse,» said Chairman Axel Lehmann on the outcome of the vote.
However, Lehmann and the management team around CEO Ulrich Koerner seem to be steering the firm into a fog bank. The veteran banker and cost cutter in October managed to present a radical cure for Credit Suisse, which offered at least some reprieve. To be sure, milestones have been reached, such as the sale of parts of the business with investment banking. And now, of course, the urgently needed financial injection.
Question of Returns
Since the strategy was announced in October, the bank's situation has taken another sharp turn for the worse. In a closed system, Koerner's plan might have been quite impressive. But now the turnaround has to happen in an environment that BAK Economics considers much more difficult for Swiss banking as a whole.
It is also significant that managers of more solidly capitalized private banks have in the meantime been pumping the brakes on costs across the board, as finews. com recently observed.
In addition, the new strategy had at least one ambiguity from the very beginning. With the targeted return on equity of 6 percent by the end of 2025, it is probably unlikely for the bank to earn its cost of capital. Since the earnings base in wealth management is now rapidly crumbling, a question mark must probably be placed behind that target itself.
