Credit Suisse Signals End to Era of Cutbacks, Job Dismissals (2)
(Bloomberg) -- Credit Suisse Group AG signaled the era of cost-cutting and job dismissals may soon be over, telling employees that the bank will emphasize businesses that generate higher returns in its next strategic plan.
Work on a blueprint for 2018 to 2020 began this month after the bank moved up a strategy meeting between executives and directors to June from the usual time of late August, according to an internal memo seen by Bloomberg and confirmed by the bank.
Credit Suisse is midway through a three-year overhaul reorganizing operations around wealth management and emerging markets. Capital generation has been the thrust so far, with the bank cutting thousands of jobs, slashing operating expenses and selling riskier assets. The bank said it’s now primed for growth and a higher stock price.
“Looking beyond 2018 we agreed there would continue to be significant value creation opportunities available to a restructured Credit Suisse,” Chief Executive Officer Tidjane Thiam wrote. “That would translate into a growing valuation of Credit Suisse as we continue to allocate more capital towards businesses that will generate higher returns and are more capital efficient.”
Credit Suisse is moving to growth mode after raising more than 10 billion francs ($10.4 billion) from two share sales and trimming 1.9 billion francs in fixed costs. The group has pulled back in investment banking and continues to wind down its strategic resolution unit, freeing up capital trapped in assets like distressed debt.
Driving Valuation
Credit Suisse said moves to boost the size and share of capital allocated to businesses attracting a higher market multiple will lift the bank’s valuation after 2018. In his comments on first-quarter earnings, Thiam singled out four units as having the highest returns on risk-adjusted capital: the Swiss bank, its two international wealth management businesses and its advisory business.
The shares were trading 0.6 percent lower at 14.54 francs in Zurich trading as of 4:48 p.m., while the Bloomberg Europe 500 bank index was down 0.26 percent.
“Credit Suisse is starting to recover and the business is doing better and better," said Urs Beck, a fund manager at EFG who holds Credit Suisse. “What I would still like to see from a strategic point of view is smaller investment banking operations.”
Thiam has repeatedly ruled out further shrinkage in that area, describing the global markets division as “right-sized.” The scaled-back unit, which houses trading activities, had 52 billion francs in risk-weighted assets at the end of the first quarter, below its new ceiling of 60 billion francs.
Earnings Update
Regarding current strategy, the bank said its priorities include “disciplined capital management” and investing in talent and technology. It reiterated its goal of reducing its cost base to less than 17 billion francs by the end of 2018. That compares with 19.4 billion francs at the end of 2016.
"Thiam’s statements are in line with Credit Suisse’s existing strategy of reducing capital allocated to the strategic resolution unit and to global markets while mainly increasing investment in its private banking businesses." Andreas Venditti, a banking analyst at Vontobel Holding AG, said by phone. "While there might be further adjustments at global markets, the main restructuring seems mostly done."
Other topics during the two-day strategy session included managing the impact of the U.K. exit from the European Union, driving digitization and innovation throughout the bank, strengthening controls and governance and ensuring that cost cuts don’t hurt the franchise, according to the memo.
Thiam said the board was satisfied with the bank’s performance over the last 18 months and that he looks forward to updating employees on its second-quarter earnings. Credit Suisse reports on July 28.
“With the progress achieved to date, we believe we are on track to deliver on our strategic ambitions,” he told employees.
(Adds analyst comment in 11th paragraph, comment on earnings in penultimate pargraph.)
To contact the reporters on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net, Jan-Henrik Förster in Zurich at jforster20@bloomberg.net.
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Cindy Roberts, Andrew Blackman
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