Credit Suisse’s Gottstein Takes Window of Opportunity for Revamp
Credit Suisse’s Gottstein Takes Window of Opportunity for Revamp
(Bloomberg) -- Credit Suisse Group AG Chief Executive Officer Thomas Gottstein is taking advantage of buoyant markets and the best first half in a decade to undertake a radical restructuring before a global recession brings a wave of defaults.
The Swiss national -- who took over from Tidjane Thiam in February -- is combining investment banking with trading in a business to be renamed global investment bank that will also incorporate the lender’s separate Asia markets unit. The restructuring extends across other parts of the company as well, from wealth management to risk and compliance.
Gottstein is seeking to put his stamp on the business after taking over in the throes of one of the worst health crises in recent history. He’s simplifying the bank’s complicated structure and partially rolling back initiatives taken under Thiam and ex-wealth management head Iqbal Khan. The former CEO split the investment bank and trading business five years ago after a slump in revenue and saw his tenure marred by surprise trading losses.
The restructuring was announced as a market rally helped fuel a 24% increase in Credit Suisse’s second-quarter net income to 1.16 billion Swiss francs ($1.27 billion), beating analysts’ estimates. The investment banking unit swung to an unexpected pre-tax profit after three straight quarters of losses, while the global markets division benefited from volatile markets that boosted other Wall Street firms.
Credit Suisse Eschews the Old Days With New Investment Bank
Credit Suisse shares gained as much as 3.7% and were trading 1.7% higher as of 9:10 a.m. in Zurich. The stock has declined about 25% this year.
Overall, net income at the Zurich bank topped Bloomberg analyst estimates for profit of 713 million francs. At the resurgent global markets business, debt trading revenue jumped 43% in U.S. dollar terms. Its head, Brian Chin, will lead the investment bank after the overhaul. In a strong quarter for many large financial institutions, Credit Suisse also set aside less than expected for souring loans and saw a surprise increase in capital levels.
The bank followed rival UBS Group AG in indicating that it may pay the second half of its 2019 dividend later this year after suspending it because of the Covid-19 pandemic and said it plans to boost the dividend by 5% annually. A division is opening between the Swiss banks and their European counterparts on payments, after the European Central Bank asked lenders not to consider shareholder payouts until 2021.
Here are some other key figures from Credit Suisse’s second quarter:
- Loan loss provisions CHF296m vs CHF444m estimate
- Aims to save 400m francs annually from 2022.
- Global Markets pretax profit CHF 591m vs CHF429 million estimate
- Net revenue CHF6.2b vs 5.6b estimate
- Common equity Tier 1 ratio 12.5% vs estimate 11.6%
- Asia Pacific pretax profit CHF298m vs 186.5m
The restructuring at the investment bank marks a victory for Chin, who helped transform the business from a perennial under-performer during a large part of Thiam’s tenure to a key profit contributor at the end of his time in charge. Its fortunes have diverged from that of the advisory business, where longtime head Jim Amine left earlier this year and was replaced by two-decade veteran David Miller.
Miller will step down from the executive board as part of the overhaul, though will remain in charge of capital markets and advisory within the investment bank.
Gottstein is acting now to cut costs, shore up profit and bolster the business before an expected slowing of trading conditions in the second half and an economic recession. Germany’s economy shrank the most in at least half a century in the second quarter, outlining the scale of the challenge facing Europe after the devastation of virus restrictions that slammed businesses and households.
Gottstein is working to restore calm after a turbulent phase at the bank marked by a damaging spying scandal under Thiam, market volatility caused by the health crisis and a series of deals linked to scandal-hit companies. The bank worked on transactions linked to Luckin Coffee Ltd. and Wirecard AG, while also probing its own supply chain finance funds with links to Masayoshi Son’s SoftBank Vision Fund for potential conflicts of interest.
The bank recently embarked on a wide-ranging assessment of its risk controls, considering centralizing risk management processes because they are too fragmented, often cutting across several business units, people familiar with the matter said earlier this month. As part of the overhaul announced on Thursday, risk head Lara Warner becomes Group Chief Risk and Compliance Officer. Lydie Hudson, who was in charge of compliance, takes on a new role in sustainability.
Changes are also taking place at the key international wealth management unit, after former head Iqbal Khan left last year to become co-head of wealth management at UBS Group. That includes reducing the number of regions and a goal of doubling revenue growth contribution from the ultra high net worth strategic clients over the next three years.
The pandemic fueled a surge in trading across the globe, allowing Wall Street firms to post record profits or trading results, even as they set aside tens of billions of dollars to prepare for a wave of borrower defaults down the road. Credit Suisse in April had set aside $1 billion to cover the impact of the coronavirus, the biggest such hit in more than a decade.
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