(Bloomberg) — Credit Suisse Group AG took its most dramatic step yet to repair the bank, unveiling a fresh plan that will see a multi-billion dollar capital raise, carve out of the investment bank and thousands of job cuts after it posted another huge loss.
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The Zurich-based bank plans to raise 4 billion francs ($4.1 billion) through a rights issue and selling shares to investors including the Saudi National Bank, it said Thursday. It’s effectively breaking up the investment bank, separating the advisory and capital markets business and selling a majority of its SPG business to Apollo Global Management Inc. and Pacific Investment Management Co.
The overhaul is an urgent attempt to restore credibility at Credit Suisse after a succession of big losses and management chaos shattered its status as one of Europe’s most prestigious lenders. Chief Executive Officer Ulrich Koerner and Chairman Axel Lehmann, brought in as crisis managers, now face the task of executing the biggest overhaul in the bank’s recent history while protecting the wealth management unit that will determine its future.
“The new Credit Suisse will definitely be profitable from 2024 onwards,” Koerner said in an interview with Bloomberg Television’s Francine Lacqua. “We do not want to over promise and under deliver, we want to do it the other way around.”
The shares were down about 7.3% at 9:10 a.m. as investors digested the restructuring charges and share sale and prospect of lower dividends.
Some of the biggest changes will come at the investment bank, including the departure of its head, Christian Meissner and the revival of the First Boston branding. The separate business will include the bank’s historically strong advisory and leveraged finance unit and be lead by Michael Klein, a veteran ex-Citigroup dealmaker known for his ties with the Middle East. The carve out will also seek outside capital for the leveraged finance business.
Bank executives had wanted to avoid a capital increase given the shares were trading near record lows, but had seen outflows from wealth management clients and ultimately decided to boost capital to help shore up its finances. The bank posted a third-quarter net loss of 4.03 billion francs and said it expected a ourth-quarter loss as well.
“Credit Suisse seems to be wanting to put a line under concerns by wealth management clients,” JPMorgan Chase & Co. analyst Kian Abouhossein wrote in a note to clients Thursday. “Material questions remain to assess well the outcome of the IB restructuring, which is relatively more complicated to what we witnessed in the case of UBS and Deutsche Bank.”
Credit Suisse said it will only pay a “nominal” dividend over the next couple of years, before reverting to “meaningful” dividends from 2025 onwards.
The strategic review came as Credit Suisse’s investment bank continued to struggle and wealthy clients fled. The quarterly loss included a 3.7 billion-franc impairment of deferred tax assets related to the revamp, and the firm said the restructuring will cost about 2.9 billion francs through 2024.
The firm will also start headcount reductions of 2,700 positions in the fourth quarter and said that its workforce is set to decline to about 43,000 by 2025, from 52,000 at present. The bank is also seeking to reduce the group’s cost base by 15%, or 2.5 billion francs, by then.
Koerner’s overhaul is the culmination of a three-month strategic review, prompted by a larger-than-expected 1.59 billion-franc loss in the second quarter that spelled the end of the short-lived tenure of CEO Thomas Gottstein. The former investment banker — tapped in 2020 after Tidjane Thiam left because of a spying scandal — presided over financial and reputational hits from the collapses of Archegos Capital Management and Greensill Capital, while overseeing a whirlwind of changes across the management board.
Less than a year ago, Antonio Horta-Osorio, who had successfully turned around Britain’s Lloyds Banking Group Plc, made his own attempt to try and turn around the bank’s fortunes. The then-chairman decided to exit the hedge fund business at the center of the Archegos scandal and shift about $3 billion of capital from the investment bank to the private bank. That stopped short of the more dramatic changes that some analysts and investors had imagined.
(Adds shares in fifth paragraph, analyst comment in eighth)
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