Credit Suisse investment bankers are preparing for brutal cuts

As someone who has driven the Beijing to Paris rally in a vintage Porsche, Ulrich Koerner knows all about staying on course. But the new head of Credit Suisse Group AG seems to have had enough of the Swiss giant’s investment bank.

The gloves have finally come off in Zurich. After years of executive boards playing around the edges of a failing machine that lost $1 billion in the first six months of 2022, bankers now fear much of the division is going up in flames. Credit Suisse’s decades of dueling with Wall Street titans for a place among the elite of big-box investment banks are potentially over.

Conversations with a dozen traders, traders, financiers and wealth advisers at Credit Suisse, who asked to remain anonymous, show an investment bank prepared for a trial. Up to two-thirds of the unit could eventually be on the block in the most extreme case, senior figures say. From now on, Koerner and chairman Axel Lehmann want the company to be an asset picker for the world’s rich and a Swiss bank serving the country’s corporate champions.

One possibility is that the investment bank will cease to exist as a separate division at some point, other insiders say, with the remaining parts needed for asset and wealth management and the Swiss bank incorporated into those units. More than 30 years after the First Boston takeover gave Credit Suisse real leverage on Wall Street, it would mark a historic retreat.

In the early 2010s, Credit Suisse at one point ranked as one of the top five global investment banks, according to Bloomberg Intelligence data, as it faced off against Goldman Sachs Group Inc. and JPMorgan Chase & Co. His disastrous backing of Archegos Capital Management and Greensill Capital, two financial firms that exploded dramatically last year, ended most ambitions with that status.

Only the M&A advisory team that traces its roots to the First Boston deal looks relatively safe, leaving question marks over fixed-income trading, leveraged finance and debt capital markets, as well as the equity capital markets. Equity trading revenue has all but disappeared following the bank’s exit last year from prime broking, which funds hedge funds. The securitized products unit, which deals in home and consumer loans, is looking for partners, with help from Centerview bankers.

At a recent Credit Suisse global investment bank town hall meeting hosted by David Miller, head of banking, management said it wanted a team that was lean and focused on advice, according to the people present.

“There comes a point where you either have a big investment bank that you can compete against the big players, or you’re too small and so it’s best to get out,” says Vincent Kaufmann of the Ethos Foundation, which represents the 3% 5% of Credit Suisse’s voting rights. It’s a view echoed by the top shareholder: “At some point they have to fix it or look for other options,” David Herro of Harris Associates told Bloomberg TV on Friday.

A Credit Suisse spokesman says: “We will update the progress of our comprehensive strategy review when we report our third quarter earnings; any report on potential results before that time is entirely speculative.”

difficult task
The toughest challenge for Koerner and Lehmann will be making exits or liquidating businesses without racking up ruinous costs or seriously damaging the company through lost revenue. Although activities such as securitized debt trading are volatile and capital intensive, they can generate monstrous profits. Finding partners or buyers for these units in today’s markets will also be difficult.

The Swiss duo will also need to successfully navigate any disagreements with the investment bank’s backers. Support from their domestic authorities may help them, people familiar with the matter say.

“The bank really needs to gain stability and trust from customers,” says Kaufmann. “They announced this new strategy, but what remains to be seen is its implementation.”

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