Credit Suisse Has One Easy Card It Can Play
(Bloomberg Opinion) -- Credit Suisse Group AG’s incoming Chairman Antonio Horta-Osorio inherits a firm reeling in both financial and reputational terms from its entanglements with Archegos Capital Management and Greensill Capital. There’s one decision that shouldn’t take long for him to make: Freeing the Swiss bank’s asset management unit to take advantage of the current hot market for money management firms.
The division previously provided a stable income stream to offset the more volatile investment banking business. But recent missteps have tarnished its appeal. There are several ways to enable the business to gain sufficient scale to compete on better terms with its bigger rivals: an outright sale, a separate listing with Credit Suisse maintaining a large stake, or a joint venture.
The bank has said it anticipates defaults on the $10 billion of supply-chain funds it ran with Greensill Capital, and that investors are likely to sue. A review of asset management was already underway — making it a standalone business is “potentially part of the plan,” Chief Executive Officer Thomas Gottstein told Bloomberg Television last month after deciding to extract the unit from its wealth management operations.
The division appears to be unloved and somewhat neglected, overshadowed by both private wealth and investment banking. Its assets grew by less than 0.5% last year, stagnating at about $475 billion in an industry where $1 trillion is becoming de rigeur to qualify as a serious global competitor. By contrast, Amundi SA’s assets swelled by 4.6% to more than $2 trillion in 2020, while the money overseen by DWS Group GmbH expanded by 3.4% to $944 billion.
In 2018 and 2019, asset management contributed less than 15% of Credit Suisse’s net income. And in the final quarter of last year, the unit made a pretax loss of 305 million Swiss francs ($329 million). It took a $450 million charge on its stake in York Capital Management, a hedge fund it bought 30% of a decade ago, after losses suffered during the Covid-inflicted market turmoil prompted the firm to abandon most of its strategies.
Alison Williams, a senior banking analyst at Bloomberg Intelligence, estimates a “low to midrange” estimate for what the asset management unit could fetch in a sale is about $4 billion. But an auction among multiple bidders “could boost the price,” she reckons.
And a bidding war could erupt. Allianz SE has expressed interest in the business, Bloomberg News reported. BlackRock Inc., State Street Corp. and even the SPAC created by former UniCredit SpA chief Jean Pierre Mustier are potential buyers, according to Reuters. DWS is on the prowl for a transformative acquisition after getting the go-ahead from parent company Deutsche Bank AG. And Amundi has shown its appetite for dealmaking is undiminished with last week’s deal to pay $980 million for Societe Generale SA’s Lyxor business.
If Credit Suisse isn’t keen on an outright sale and doesn’t need the funds that badly, maybe joining forces with UBS Group AG would make more sense. UBS talks over an asset management merger with DWS two years ago floundered on who would have a majority stake. While the control issue would still be an obstacle today, the notion of creating a standalone Swiss powerhouse in the industry is attractive. Few banks have been able to build successful global asset management arms. And Ulrich Koerner, who formerly ran the UBS division and now heads the Credit Suisse operation, is ideally placed to oversee a merger.
A separate listing would free the division to raise funds in its own right to pursue industry consolidation, while allowing Credit Suisse to maintain access to its suite of investment products for its private wealth customers. Deutsche Bank floated DWS three years ago, maintaining an 80% stake. Credit Agricole SA has retained 70% of Amundi for a decade as it expanded through a combination of acquisitions and organic growth to become Europe’s biggest fund manager.
Whichever avenue the Swiss bank chooses, a move to rehabilitate its asset management unit would at least signal to shareholders that Credit Suisse is taking decisive action to stop the rot. Its investment bankers, of all people, should recognize a sellers’ market when they see one.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
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