Credit Suisse to Merge Investment Bank and Trading in Revamp

(Bloomberg) -- Credit Suisse Group AG is set to announce a sweeping overhaul of its business as Chief Executive Officer Thomas Gottstein seeks to tighten controls and boost the performance of the investment bank.

The Swiss lender plans to merge the investment bank and capital-markets unit -- which has posted losses in recent quarters -- into the resurgent global markets trading unit, people with knowledge of the matter said. The bank also expects to combine its risk and compliance units, the people said, asking not to be identified because the matter is private.

The changes are part of an overhaul Gottstein is counting on to increase profitability at the securities unit while tightening risk oversight after the lender was involved in a series of deals related to scandal-struck companies. They’re also the first signs of the Swiss executive putting his stamp on the lender as it seeks to move past a damaging spying incident.

The bank may announce the changes as soon as Thursday, when it reports second-quarter results, the people said.

The move would reverse the split predecessor Tidjane Thiam enacted five years ago amid a slump in revenue. Global firms have long vacillated on whether it’s best to keep investment-banking and trading units together or run them separately. Goldman Sachs Group Inc. has two separate divisions, while investment bankers and traders at Morgan Stanley all report to one executive.

The restructuring marks a victory for global markets and its head Brian Chin, who helped transform the business from a perennial underperformer to a key profit contributor. Its fortunes have diverged from that of the advisory business. Longtime head Jim Amine left earlier this year and was replaced by two-decade veteran David Miller after a run of bad results.

“Our strategy works,” Credit Suisse said in a statement. “We are a leading, global wealth manager with strong investment banking capabilities. On an ongoing basis, we consider a broad range of options to identify ways to further improve how we serve our clients and achieve our strategic goals in a compliant, profitable way. We are in a constant dialogue on these topics with our investors.”

Luckin, Wirecard

Gottstein is attempting to clean up the bank after the spying incident under Thiam and a turbulent phase during the coronavirus outbreak. The bank has worked on deals linked to Luckin Coffee and Wirecard AG, two companies embroiled in scandals, and was also forced to start an internal probe into supply-chain finance funds with links to Masayoshi Son’s SoftBank Vision Fund and billionaire Lex Greensill.

Luckin Coffee and Wirecard underscored the need for more efficient controls. Credit Suisse organized a margin loan for Luckin founder Lu Zhengyao. In April, the bank took a large hit in its Asia business, setting aside about $100 million for soured loans that mostly related to three cases, the largest of which was Luckin.

The bank also helped sell $1 billion of Wirecard-linked securities last year after questions were raised about the German company’s accounting. SoftBank had initially agreed to buy the convertible debt, but then cut its exposure through a series of transactions. Last month, Wirecard filed for insolvency.

Creidt Suisse’s ties to SoftBank were also a factor in an internal probe of the bank’s supply-chain funds. The investment vehicles hold short-term corporate loans and finance a number of startups backed by the SoftBank Vision Fund. The loans are sourced by Greensill Capital, which is also backed by SoftBank. The bank told clients earlier this month it would change its guidelines to reduce the maximum exposure to a single borrower after the review.

Former Morgan Stanley banker Greensill partnered with Credit Suisse in 2017 to create the bespoke investment funds, which allow suppliers to get paid early in return for a small cut that the funds receive in return.

Wealth Management

Gottstein may be preparing to reveal other structural changes after taking over in February just as the impact of the pandemic was starting to become apparent. The bank may overhaul its main international wealth-management business to reduce the number of regional reports under the new head of the unit, Philipp Wehle. The move would undo a structure created just two years ago by his predecessor, Iqbal Khan, people familiar with the matter said. Gottstein is also considering other changes, the people said.

Swiss newspaper Sonntags Zeitung previously reported that Gottstein was considering reversing Thiam’s decision to split the investment bank into separate divisions and merging risk and compliance, as well as considering cutting hundreds of jobs and thinning the domestic branch network.

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