Credit Suisse banking on restructuring- The New Indian Express | Techy Kings

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By AFP

ZURICH: Credit Suisse’s new chief executive Ulrich Koerner, who is faced with trying to turn around a bank beset by scandals, is set to unveil his strategic roadmap on Thursday.

The pressure is on for Switzerland’s second-biggest bank after investors saw their money go up in smoke from falling share prices.

And a fragile economic outlook, recent market turmoil and rising interest rates could further complicate Koerner’s task as he unveils his restructuring plans.

A pillar of Swiss banking

With revenues of nearly 22.7 billion Swiss francs (USD 22.65 billion) in 2021, Credit Suisse is second only to UBS in Swiss banking.

But unlike its rivals which made a net profit of USD 7.4 billion, Credit Suisse suffered a loss of 1.6 billion francs.

Founded in 1856 by Alfred Escher, a Swiss railway pioneer, the bank later called the Schweizerische Kreditanstalt grew into a pillar of Swiss finance.

It financed the construction of the Gotthard tunnel, and the development of large industrial companies as well as insurance giants, including Swiss Life and the reinsurance company Swiss Re.

The Zurich-based bank has been a powerhouse internationally, especially since it took over US investment bank First Boston in 1990. Present in some 40 countries, it employs 51,410 people worldwide.

Too big to fail?

Credit Suisse is one of 30 banks worldwide deemed too big to fail, forcing it to set aside more cash to weather the crisis.

At the end of June, the CET1 ratio — which compares a bank’s capital to risk-weighted assets — stood at 13.5 percent: slightly less than HSBC Holdings but greater than BNP Paribas, Europe’s two largest regulated banks. the need is higher.

Banking experts therefore dismissed social media rumors earlier this month of a “Lehman Brothers moment”, referring to the collapse of US banks, triggering the 2008 financial crisis.

READ ALSO | Credit Suisse shares fall on report of US probe

“Banks will go through difficult times,” Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, told AFP, but “not because of solvency or liquidity risks”.

Credit Suisse has already gone through a major restructuring under Tidjane Thiam, its chief executive from 2015 to early 2020.

The objective is to relieve investment banks from the most volatile activities and to strengthen wealth management, through a capital increase of six billion and then four billion Swiss francs.

In November 2021, another reorganization was launched after a series of scandals tarnished its reputation.

Four parts

Since then, Credit Suisse’s activities have been divided into four divisions: wealth management, asset management, Swiss banking and its investment banking arm.

Wealth management — specializing in investments for wealthy clients — and Swiss banking — including retail banking and other domestic activities — are considered the most stable.

In the first half of 2022, wealth management, which makes up 30 percent of the bank’s income, experienced 1.4 billion Swiss francs in capital withdrawals, mainly from European and Middle Eastern clients.

Swiss banking, which represents about a quarter of Credit Suisse’s revenue, was the only division that saw its earnings increase.

The asset management branch was shaken by the bankruptcy of the British financial firm Greensill, in which about USD 10 billion was committed through four funds.

Meanwhile, investment banking was hit by the explosion of US fund Archegos, which cost Credit Suisse more than USD 5 billion.

READ ALSO | Concerns over Credit Suisse’s viability surge as shares dive

While asset management accounted for only about eight percent of Credit Suisse’s revenue in the first half of the year, investment banking accounted for 37 percent.

In the first six months, the investment banking division, which is active in areas including debt issues and mergers and acquisitions, suffered a loss of 992 million Swiss francs after a loss of 3.7 billion francs in 2021.

Investors have long called for the reform of the division, believing that it does not have the weight to take on the big US banks.

In 2011, the Ethos foundation, which represents pension funds in Switzerland, strongly opposed a convertible bond issue aimed at strengthening the branch, judging the investment banking arm as too capital intensive.

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