Credit Suisse Signals End to Era of Cost-Cutting, Job Cuts

(Bloomberg) -- Credit Suisse Group AG signaled the era of cost-cutting and job dismissals may soon be over, telling employees that the bank will emphasize businesses that generate higher returns in its next strategic plan.

Work on a blueprint for 2018-2020 began this month after the bank moved up a strategy meeting between executives and directors to June from the usual time of late August, according to an internal memo seen by Bloomberg and confirmed by the bank.

Credit Suisse is mid-way through a three-year overhaul reorganizing operations around wealth management and emerging markets. Capital generation was the thrust of its strategy last year, when the bank cut thousands of jobs, slashed operating expenses and sold risky assets. The bank said it’s now better positioned for both growth and a higher stock price.

“Looking beyond 2018 we agreed there would continue to be significant value creation opportunities available to a restructured Credit Suisse,” Chief Executive Officer Tidjane Thiam wrote. “That would translate into a growing valuation of Credit Suisse as we continue to allocate more capital towards businesses that will generate higher returns and are more capital efficient.”

Two share sales have raised more than 10 billion francs ($10.4 billion) combined while job cuts and other belt-tightening measures have trimmed 1.9 billion francs in fixed costs. The bank has pulled back in investment banking and continues to wind down its strategic resolution unit, which contains assets that no longer sync with its strategy.

Bank’s Valuation

Credit Suisse said that moves to boost the size and proportion of capital allocated to businesses attracting a higher market multiple will drive the bank’s valuation higher after 2018. In his comments on first-quarter earnings, Thiam singled out four units as having the highest returns on risk-adjusted capital: its Swiss banking unit, its two international wealth management businesses and its advisory business.

The shares fell 0.6 percent to 14.54 francs in Zurich trading as of 3:36 p.m.

“Credit Suisse is starting to recover and the business is doing better and better," said Urs Beck, a fund manager at EFG who holds Credit Suisse. “What I would still like to see from a strategic point of view is smaller investment banking operations.”

The Swiss bank has reduced its exposure to distressed debt and other illiquid products tying up capital. Credit Suisse’s scaled-back global markets unit had 52 billion francs in risk-weighted assets at the end of the first quarter, below its new ceiling of 60 billion francs. Thiam has said he doesn’t intend to go smaller.

Capital Discipline

Regarding current strategy, the bank said its priorities include “disciplined capital management” and further capital efficiency. It reiterated its goal of reducing its cost base to less than 17 billion Swiss francs by the end of 2018. Total operating expenses amounted to about 18 billion francs at the end of 2016.

Other topics at the strategy session included managing the impact of the U.K. exit from the European Union, driving technology, digitization and innovation throughout the bank and ensuring that cost-savings don’t hurt the franchise, according to the memo.

Thiam said the board was satisfied with the bank’s performance over the last 18 months.

“With the progress achieved to date, we believe we are on track to deliver on our strategic ambitions,” he told employees.

To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net, Jan-Henrik Förster in Zurich at jforster20@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Cindy Roberts