The restructuring includes shrinking its investment bank and raising $4 billion in capital from investors, including a state-owned Saudi bank.
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After decades of chasing the prestige and profits of its rivals on Wall Street, Credit Suisse is pulling back to save itself.
The Swiss bank said on Thursday that it would carve up its investment bank, cut thousands of jobs and raise $4 billion in capital from the state-owned Saudi National Bank and other investors, as it seeks to move on from years of losses and scandals around the world.
The announcement came as the firm reported that it had lost 342 million Swiss francs, or $346 million, in the third quarter, a sharp swing from a $1 billion profit a year ago. And that excluded taxes and hefty costs related to the restructuring; including those charges, the bank’s third-quarter loss was just over 4 billion Swiss francs.
Credit Suisse’s stock fell more than 18 percent on Thursday, as investors absorbed the scale of the firm’s reorganization plans and the amount of capital it was seeking to raise by selling new shares.
Thursday’s announcement punctuates the daunting challenges facing the 166-year-old lender, a linchpin of Switzerland’s banking system. For years, it has stumbled from crisis to crisis, including billions of dollars in losses, costly legal settlements and a series of executive departures — including the ouster of a chief executive, Tidjane Thiam, over the surveillance of employees.
Fears about undiscovered financial land mines in the bank’s books have weighed heavily. Its stock has fallen 60 percent so far this year, pulled down in part by unfounded rumors about its solvency. That speculation may have also spooked clients, with the bank reporting a loss of $13 billion in assets under management during the most recent quarter.
The bank’s latest earnings announcement underscored the urgency behind the vast restructuring. Credit Suisse said it reflected weak performance in its investment bank, as well as charges related to legal settlements in a New Jersey mortgage-bonds investigation and a French money-laundering case.
To bolster its finances, Credit Suisse said it would cut its costs by some $2.5 billion through measures including layoffs that would reduce its employee count by 9,000 positions. It employed about 52,000 people at the end of September.
And it plans to raise about $4 billion by selling new shares to investors to shore up its capital reserves, including more than $1 billion to Saudi National Bank, a new shareholder that would own up to 10 percent of Credit Suisse after the transaction.
Credit Suisse’s revamp caps months of promises by its management team — including its chief executive of six months, Ulrich Körner — to devise a strategy to make the bank smaller and more financially prudent. What emerged from the review was a plan to focus on its private wealth unit, which represents more than a third of its revenue and manages more than $640 billion in assets, and to keep only the operations that directly support this business.
Investment banking and trading, which Credit Suisse had sought to build up for years to better compete with Wall Street rivals like Goldman Sachs, increasingly became a costly distraction. The firm’s deals and advisory unit often landed big mandates for work on mergers, bond issues, public listings and other transactions, but it trailed the likes of Goldman and Morgan Stanley in the closely scrutinized rankings of deals and fees generated by this kind of business.
Trading operations can yield huge profits but also come with big risks, like when Credit Suisse lost $5.5 billion linked to the implosion of the investment firm Archegos Capital Management.
“The investment bank has not created value for a long time,” Mr. Körner said on a call with analysts on Thursday. “We have taken a hard look at what makes sense for us at this juncture.”
Credit Suisse plans to spin out its deals and capital advisory business into a new firm called CS First Boston, resurrecting the name of the well-known American investment bank it acquired in 1988.
That firm will be led by Michael S. Klein, a veteran deal maker with deep contacts across the Middle East who, as a Credit Suisse director, helped lead the strategic review. As part of the reorganization, Mr. Klein will step down from the Credit Suisse board, while its existing leader, Christian Meissner, will leave immediately.
The investment bank will seek to raise capital from outside investors, potentially including Saudi National Bank.
Credit Suisse also plans to put some of its riskiest assets and nonessential businesses, including what’s left of its hedge fund lending unit and its operations in regions like Latin America, into a new division — informally known in financial circles as a “bad bank” — to eventually be sold or wound down.
The bank reached a preliminary deal to sell a majority of its securitized products group, a profitable trading business that requires significant capital, to investors led by Apollo Global Management and Pimco. If a final agreement is reached, the transaction is expected to close by next summer.
Analysts offered a cautious assessment of Credit Suisse’s plans. Kian Abouhossein of JPMorgan Chase wrote in a note to clients that he had hoped for a greater retreat from investment banking and worried about existing investors’ holdings being diluted by the planned sale of shares. But overall, he said of the bank’s plan, “our initial view is it is going in the right direction.”
Credit Suisse Unveils Sweeping Revamp to Revive Its Fortunes – The New York Times