Investors showed no mercy with Credit Suisse yesterday – the quarterly results were met with a substantial drop in the valuation of its shares. The question is what this means for the initial public offering of its Swiss unit.
Thomas Gottstein, 52, arguably has the toughest job in Swiss banking. He has to make the Swiss division of Credit Suisse (CS) fit for an IPO and convince investors to buy a stake in the new Swiss Universal Bank (SUB) when it is being partially sold to the public next year.
Not an easy task by any standard judging by yesterday's third-quarter results. The figures were disappointing.
The shares of CS declined 6.6 percent during the course of the day. Still, it became apparent once more that the Swiss business is the most attractive by a mile – the unit, which the management had paid scarce attention to before and even after the financial crisis.
Savoy Not for Sale
CS Switzerland in the third quarter made a good show partially because it generated one-time income from the sale of landmark properties. And further real estate is due to be sold, a spokesman told finews.ch. The prestigious Hotel Savoy in Zurich however is still not up for sale.
Furthermore, institutional investors pulled a billion francs in assets out. However, these two isolated aspects, which put the results in perspective, still don't make the performance a bad one as such.
Jewel in the Crown
Quite to the contrary: CS Switzerland is a jewel in the crown. With a cost-income-ratio of 61.3 percent for the nine-month period and 52.7 percent in the third quarter, the division's profitability was above average.
Thus, Gottstein is on course with his bank. The target of earning 2.3 billion francs in pretax by the end of 2018 remains in sight. Last year, the unit had pretax of 1.6 billion. This year, based on the numbers available so far, a profit of 1.8 billion is realistic, according to sources at the bank.
Not There Yet
But the bank isn't there yet, and CEO Tidjane Thiam indicated as much looking at the bank as a whole. The industry is suffering from a slowdown of growth, making an increase in profit dependent on cost savings. CS Switzerland has already cut a fair deal, with some 1,600 jobs gone in Switzerland alone.
By November 21, the Swiss business will have been moved into a separated legal unit, Credit Suisse AG. That's the legal condition for selling up to 30 percent of this Swiss Universal Bank by way of an IPO in the second half of 2017.
Who Will Fight for Minority Shareholders?
Banking experts voiced some concern about the independence of the future board of SUB, when a majority of the members also sit on the board of the group. In other words, how will the interests of the minority shareholders be defended under those conditions?
Alexandre Zeller, a former CS banker and chairman of SIX will lead the board of Credit Suisse (Schweiz) AG. Peter Derendinger, a further board member, also has a past at the bank. Alexander Gut is the son of former CS Chairman Rainer E. Gut. Urs Rohner, Andreas Koopmann, Severin Schwab and Thiam himself are completing the committee – all of them also members of the group board.
A Complex Task
UBS, CS' cross-town rival, also moved its Swiss unit into a separate legal entity a while ago. But the Swiss No. 1 rejected an IPO on grounds of the complexity of the task.
Gottstein said that he wanted retain as many services available at his unit to make it less dependent on the group. Still, putting too much clear blue water between group and division won't make much sense if the bank wants to continue to benefit from synergies.
First Step Towards Divorce?
Be this as it may, some analysts expect the group to sell further stakes of SUB to investors at a later stage in a bid to merge the bank's other divisions with a foreign bank.
It has become apparent that the investment bank is trailing behind the U.S. competition – the business is too costly and not profitable enough. Equally, international private banking outside Asia will only expand at a sustainable rate in a larger context.
SUB Success Strategically Important
So far, all this remains projection. But CS will surely remain the source of fantasies among stock brokers in coming years. Therefore, the success of CS Switzerland remains of high strategic importance. The company is said to plan further growth initiatives, about which it will inform on December 7 at its investor day in London.
