Credit Suisse Eclipsed in Equity Underwriting After Archegos

(Bloomberg) -- A plan announced Thursday by Credit Suisse Group AG to exit its prime services business follows a decline in market share for what was previously Wall Street’s top underwriter of certain stock offerings. 

The bank is discontinuing much of a segment that caters to hedge funds like Archegos Capital Management months after its liquidation cost Credit Suisse about $5.5 billion. Disclosed alongside fourth-quarter guidance that sent shares lower on Thursday, the move is part of a broader plan that would morph its investment bank -- the area also responsible for stock offerings -- into a division that’s more supportive of other units.

“This is about focus and pivoting our business away from capital-heavy products,” chief executive officer Thomas Gottstein said at investor day on Thursday. “We plan to be expertise-led, not balance sheet-led. In this way we should be a strategic partner for our core corporate, institutional and ultra high net worth clients.”

In addition to the Archegos blowup, the changes come after competitors eclipsed Credit Suisse in global equity underwriting and related categories this year, according to Bloomberg league tables, due in part to defections of key dealmakers and waning appetite for special purpose acquisition companies. While Credit Suisse’s equity underwriting increased alongside global deal flow, beating some estimates, the bank is losing ground to rivals in capturing this extra business. 

Credit Suisse was last year’s leader of U.S. IPO underwriting, with a 12% market share driven largely by SPAC listings. During the second half of 2021, it’s dropped to ninth in this category with a 4.1% share as SPAC issuance ebbs.

The trend could continue despite the retreat from prime services if the new structure leaves the bank’s equity business in a smaller role, Citigroup analyst Andrew Coombs wrote in a note.

“We also fear the exit from Prime is likely to leave the rest of the equity business as nothing more than a service function for the wider group and unable to turn a profit in its own right,” according to Coombs. Citi has a buy rating on Credit Suisse.

A spokesperson for the bank declined to provide additional comment.

Credit Suisse captured 2.8% of the equity underwriting market during the second half, Bloomberg league tables show. That’s a drop from 3.5% during the first half and 5.2% for all of 2020. Despite the decline in market share, Credit Suisse noted in Thursday’s report that its business grew -- just not as a quickly as its competitors. 

The drop in market share is more pronounced in the U.S., ground zero for the Archegos scandal as well as the surge in SPAC popularity that boosted Credit Suisse’s business last year. After a 7% share of this market last year, Credit Suisse got 5.1% of the business during the first half of 2021 and 3.2% so far in the second half. 

Management at Credit Suisse said on Thursday its investment bank provides a competitive advantage, but that it also wants to invest in capital-light markets and advisory businesses. 

“We need to recognize shareholders suffered losses from the Archegos matter, and there is risk in the supply chain finance matter,” chief financial officer David Mathers said during a conference call on Thursday. “It’s a balance we have to get right.”

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