The global uncertainty weighs on the mood of bank customers across Europe.
(Photo: imago images/Geisser)
Zurich Endless crisis at Credit Suisse: The second largest Swiss bank has to cope with another loss in the billions. In response, the bank changes its CEO and considers a clear cut in investment banking.
It was already leaked on Wednesday night that Credit Suisse boss Thomas Gottstein had to go and be replaced by Ulrich Körner, previously head of asset management, the investment business with professional investors. On Wednesday, the bank confirmed reports by the Wall Street Journal and the Financial Times.
Chairman of the Board of Directors Axel Lehmann also announced a comprehensive strategy adjustment – the second in two years. In particular, it provides for the “transformation of the “investment bank into a capital-conserving, advice-oriented banking business and a more focused market business”. As a result, the once proud US investment bank Credit Suisse First Boston has been slashed into a mere service provider for its core business, wealth management.
Lehmann said Credit Suisse’s businesses have great qualities. “But we have to be more flexible to ensure that they have the necessary resources to remain competitive.” The figures for the second quarter, which the bank published on Wednesday, were so dramatic that Board of Directors Axel Lehmann had to take countermeasures.
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Before taxes, the bank reported a loss of CHF 1.6 billion. Asset management, the bank’s most important business area, slipped significantly into the red, also due to a series of write-downs. But even on an adjusted basis, which excludes these one-time items, the division’s pre-tax profit declined 74 percent. The result in investment banking was also catastrophic: there the bank accumulated a loss of 1.1 billion francs within a quarter.
Hard cuts in investment banking
Credit Suisse’s capital market business practically came to a standstill. Among other things, the bank specializes in leveraged finance for takeovers. These are company takeovers, mostly by private equity houses, which finance a large part of the purchase price through debt. In the current environment, however, these deals simply do not take place.
The bank had also taken some of the deals that are now up in the air on its own book and has to write off a three-digit million amount on them. The bank also has to cope with a significant decline in bond trading, another specialty of Credit Suisse. In addition, there are new penalties from the US Securities and Exchange Commission for lax handling of customer communication, which has already cost UBS and numerous Wall Street banks a three-digit million amount each.
In response, Credit Suisse is severely downsizing its investment bank. The cuts in the group’s allocated equity are to be made more quickly. In addition, the bank wants to raise outside capital for its business with structured products. “The essential part of the strategy review is to ensure that a less capital-intensive, advisory-oriented banking division and a more focused markets division are created,” the bank said.
The division is also repositioning itself in terms of personnel: the bank is appointing two new co-heads for the areas of banking and markets, David Miller and Michael Ebert. Investment bank boss Christian Meissner will focus on the ongoing strategic transformation of the business. However, the “Financial Times” reported that Meissner is also about to jump.
The management prepares its employees for tough cuts. The costs are expected to drop from CHF 16.8 billion to CHF 15.5 billion. In investment banking in particular, numerous jobs are likely to be lost.
More: UBS is also feeling the effects of the downturn