Less complex, less risky, and more Swiss are the foundations on which the new Credit Suisse is to be built. But there is still a rocky road ahead.

With a «horror year» behind it, as chairman Axel Lehmann put it, that should mean part of the recent inglorious past of Credit Suisse has been consigned to the history books, and legacy burdens have been overcome. But getting back on track after one of the worst financial years in the 167-year history of Credit Suisse will certainly not be a cakewalk.

Restoring lost confidence on the long and rocky road ahead will be the most difficult task for CEO Ulrich Koerner, who replaced his hapless predecessor Thomas Gottstein in July. Now, equipped with a new strategy and 4 billion francs ($4.3 billion) in fresh equity raised in October, he has to see the Group's restructuring through to a hopefully positive result.

An Undaunted CEO

Koerner appeared undeterred to the media on Thursday despite record outflows in the final quarter and confirmed all of the group's restructuring goals announced in October, namely a return to profitability in 2024. He also exuded optimism by pointing out that the group's deposits were overall positive in January.

Still, he was not fully able to dispel all doubts. Initial reactions on the stock market were not favorable and Credit Suisse was at times down ten percent following the announcement of the results, underscoring widespread skepticism among investors.

Well Behind

To be sure, Credit Suisse shares are up 18 percent since the beginning of the year, outperforming the broad stock market. But with a 70 percent plunge in 2021, Credit Suisse is well behind the competition.

Just how big the gap still is can be seen from the fact Switzerland's second-largest bank is currently trading at a discount of almost 80 percent to book value. Competitors such as UBS are trading at around 1.2 times their book value, while Wall Street banks are even higher.

Credit Ratings Suffer

Credit Suisse is also moving into tricky territory with its debt. After a series of downgrades by rating agencies last year, its bonds are teetering on junk status. And with a negative outlook imposed by some rating agencies, its credit rating could slip below «investment grade.»

Should that transpire it would not only add further tarnish to the Credit Suisse brand, but its financing costs would likely rise again, jeopardizing the success of the already expensive restructuring.

A Savior in UBS?

In a worst-case scenario, the group could be broken up, which apparently has already been gamed. In such a scenario, UBS would take over Credit Suisse in its entirety and decide which parts are viable and which would be wound up in a «bad bank.»

To ensure that doesn't happen and that the Swiss financial industry won't lose its model of two major banks, the restructuring team at Credit Suisse cannot afford to make any mistakes during its third restructuring since 2015.

No More Excuses

It must keep its promise to focus the bank more on asset management, which is more capital-efficient, focus more emphatically on Switzerland, and heavily reduce its involvement in riskier investment banking.

Whether the optimistic plans of a resurrected CS First Boston are compatible with this is doubtful. The idea of taking market share from the Wall Street giants with a nimble boutique led by Michael Klein and the capital strength of a healthy Credit Suisse has a certain innocent charm.

Minor Leagues

The history of the past thirty years has made it abundantly clear the Swiss bank that has suffered too many defeats competing with the big boys in US investment banking and is now considered second-rate.

Sooner rather than later, Credit Suisse should exit the takeover advisory and bond placement business in the United States. Koerner, meanwhile, only vaguely hinted at a withdrawal from the CS First Bosten subsidiary using an IPO in early 2025.

Destructive Culture War

A radical departure from American-style investment banking would ultimately put an end to the culture war in a bank that, since the mid-1990s, has lost its image of perhaps brittle but serious bankers and turned more and more to aggressive and self-interested banking.

Stories abound of managers who saw the bank above all as a cash cow that only had to be milked cleverly enough to make themselves rich.

Gulf Region Shareholders

In this respect, a return to forgotten virtues is probably the most important thing that is needed, along with a functioning restructuring plan, to make Credit Suisse shine again.

Will the investors from Saudi Arabia and Qatar, who already account for one-fifth of the bank's shareholders, realize this?