Credit Suisse will cut its investment bank and focus on building up its wealthy client base, the Swiss bank announced today, as it regroups following a series of scandals.
The bank will close much of its core brokerage business that dealt with hedge funds such as bankrupt investment firm Archegos.
Instead, it will inject an additional 3 billion Swiss francs ($3.3 billion) into its private bank for the rich, which will be centralized into a single global company.
“Risk management will be at the heart of our actions, helping to foster a culture that reinforces the importance of accountability and responsibility,” said President Antonio Horta-Osorio.
Over the past year, Credit Suisse has been fined for arranging a fraudulent loan in Mozambique, tarnished by its involvement with late financier Greensill, racked up $5.5 billion in losses in bankruptcy of Archegos.
He has also been reprimanded by regulators for spying on executives.
It threw a cloud over the bank, caused an exodus of key staff and fueled speculation that the group, whose share price has languished, could even be taken over by a rival.
The bank posted a 21% drop in third-quarter profit and said it expected to post a net loss in the fourth quarter by writing off its investment banking-related goodwill for a one-time charge of around 1.6 billion Swiss francs.
Credit Suisse plans to hire 500 more private bankers over the next three years, with the goal of having 1.1 trillion Swiss francs in assets under management by 2024, up from 0.9 trillion currently.
It will simplify its structure into four divisions – investment banking, Swiss banking and asset management, in addition to wealth management, and four geographic regions – Europe, Middle East and Africa (EMEA), Asia-Pacific, Americas and Switzerland.
Today’s announcement is the first step on the road to mastering the bank chartered by Horta-Osorio, who took over in April as the bank grappled with the fallout of a reckless posting.
The bank’s drive to centralize its operations draws lessons from some of its recent failures, including Archegos.
Earlier this year, Credit Suisse released a report slamming Archegos for focusing on short-term profit maximization and allowing “voracious risk taking” for failing to steer the bank away from disaster.
The lean investment bank will focus on advising companies on transactions and quotes, and trading in cash stocks and other products of interest to its private banking clients. It will reduce its emerging markets lending, structured derivatives and other “non-core” market activities as well as prime brokerage.
Despite lengthy discussions of Archegos – by far the bank’s largest hedge fund client – Credit Suisse management was apparently unaware of the risks it was taking.
The bank’s chief risk officer and the manager of its investment bank remember not hearing about it for the first time until the day before the fund collapsed.
The financial humiliation of Credit Suisse contrasts sharply with its long distance rival UBS.
Following massive losses and a bailout during the financial crisis, UBS successfully transitioned from investment banking to wealth management and is now the world’s largest wealth manager at $3.2 trillion of invested assets, about three times that of Credit Suisse.