10.27.2022

Credit Suisse Revives CS First Boston as Independent Firm

10.27.2022
Credit Suisse’s strategy is good news for its 2,800 employees at Madison Avenue

Credit Suisse Group AG (Credit Suisse) announces a series of decisive actions to create a simpler, more focused and more stable bank built around client needs.

The announcement follows a strategic review conducted by the Board of Directors and Executive Board, resulting in a radical restructuring of the Investment Bank, an accelerated cost transformation, and strengthened and reallocated capital, all of which are designed to create a new Credit Suisse.

Credit Suisse is taking extensive measures to deliver a new, more integrated business model, with the goal of creating value for shareholders. The bank will build on its leading Wealth Management and Swiss Bank franchises, with strong product capabilities in Asset Management and Markets.

Over the next three years, Credit Suisse expects to:

• Radically restructure the Investment Bank to significantly reduce Risk Weighted Assets (RWAs) with:

o A highly connected Markets business and industry-leading Investor Products franchise

o CS First Boston as an independent Capital Markets and Advisory bank

o Capital release from exits and significant exposure reduction for Securitized Products o Reduced RWAs and Leverage Exposure, each expected to decrease by ~40%

• Accelerate cost reductions

o Reducing the Group’s cost base by 15%, or CHF ~2.5 billion, to CHF ~14.5 billion in 2025

• Progress on framework and exclusivity agreement announced today to transfer a significant portion of the Securitized Products Group (SPG) to investor group led by Apollo Global Management

• Strengthen the CET1 ratio through Securitized Products transaction and other divestments

• Create a Non-Core Unit (NCU) to accelerate the run-down of non-strategic, low-return businesses and markets, to release capital

• Allocate almost 80%1 of capital to Wealth Management, Swiss Bank, Asset Management and Markets by 2025

The bank is targeting a Group CET1 ratio pre-Basel III reform of at least 13% throughout the transformation2 , and a Group CET1 ratio pre-Basel III reform of more than 13.5% by the end of 2025. Credit Suisse has today announced its intention to raise capital with gross proceeds of CHF ~4 billion through the issuance of new shares to qualified investors, including Saudi National Bank, which has committed to invest up to CHF 1.5 billion to achieve a shareholding of up to 9.9%, and through a rights offering for existing shareholders, subject to approval at the Extraordinary General Meeting (EGM) on November 23, 2022. These measures are expected to translate into a diversification of the bank’s shareholder base and increase the Group CET1 ratio from 12.6% at 3Q22 to a pro forma ~14% ratio. The bank estimates restructuring charges, software and real estate impairments in connection with the transformation of CHF 2.9 billion over a period from 4Q22 to 2024. The transformation is intended to be funded through divestments, exits, today’s announced capital actions and existing resources.

Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse, said: “Over 166 years, Credit Suisse has built a powerful and respected franchise but we recognize that in recent years we have become unfocused. For a number of months, the Board of Directors along with the Executive Board has been assessing our future direction and, in doing so, we believe we have left no stone unturned. Today we are announcing the result of that process – a radical strategy and a clear execution plan to create a stronger, more resilient and more efficient bank with a firm foundation, focused on our clients and their needs. At the same time, we will remain absolutely focused on driving our cultural transformation, while working on further improving our risk management and control processes across the entire bank. I am convinced that this is the blueprint for success, helping rebuild trust and pride in the new Credit Suisse while realizing value and creating sustainable returns for our shareholders.”

Ulrich Körner, Chief Executive Officer of Credit Suisse, said: “This is a historic moment for Credit Suisse. We are radically restructuring the Investment Bank to help create a new bank that is simpler, more stable and with a more focused business model built around client needs. Our new integrated model, with our Wealth Management franchise, strong Swiss Bank and capabilities in Asset Management at its core, is designed to allow us to deliver a unique and compelling proposition for clients and colleagues while targeting organic growth and capital generation for shareholders. The new Executive Board is focused on restoring trust through the relentless and accountable delivery of our new strategy, where risk management remains at the very core of everything we do.”

Strategic Priorities for Transforming Credit Suisse

Restructuring the Investment Bank

Credit Suisse intends to take decisive steps to restructure the Investment Bank and focus on areas more closely connected to its core businesses where it has a competitive advantage. This will involve transforming the risk profile of the Investment Bank and targeting a reduction in RWAs of ~40%3 by 2025 through strategic actions across four areas:

The Markets business will include the strongest and most relevant aspects of the new Credit Suisse’s trading capabilities. While remaining fully committed to serving institutional clients, its leading capabilities in cross-asset investor products as well as equities, FX and rates access will be closely aligned with the Wealth Management and Swiss Bank franchises. This will allow Credit Suisse to provide tailored solutions to clients and differentiate itself from other pure-play wealth managers. These changes are also expected to enable Markets to reinforce its position as a solutions provider to third party wealth managers. Markets will also support the newly created CS First Boston.

The Investment Bank’s capital markets and advisory activities will – following a transition period – lead to the creation of CS First Boston, a firm with a partnership culture that we believe will be competitive and attractive to anchor investors, employees and entrepreneurial clients. Drawing on its rich heritage across advisory and capital markets, CS First Boston is expected to be more global and broader than boutiques, but more focused than bulge bracket players. The future CS First Boston envisions attracting third-party capital, as well as a preferred longterm partnership with the new Credit Suisse.

A Capital Release Unit (CRU) will be created and comprise a NCU and the Group’s Securitized Products business. The NCU’s purpose is to release capital through the wind-down of non-strategic, low return and higherrisk businesses. The NCU is expected to include the remainder of Prime Services, non-Wealth Management related lending in Emerging Markets, the bank’s presence in select countries and select European lending and capital markets activities. The NCU is expected, over time, to release ~60% of RWAs4 and ~55% of Leverage Exposure by the end of 2025, allowing the bank to allocate more capital to higher-return businesses where it has clear competitive advantages.

Credit Suisse has entered into a framework and exclusivity agreement to transfer a significant portion of its Securitized Products Group (SPG) to an investor group led by Apollo Global Management. Under the terms of the proposed transaction, investment vehicles managed by affiliates of Apollo and PIMCO would acquire the majority of SPG’s assets from Credit Suisse and other related financing businesses from Credit Suisse, enter into an investment management agreement to manage the residual assets on Credit Suisse’s behalf, hire the SPG team to the new platform and receive certain ongoing services from Credit Suisse in order to maintain a seamless, high-touch experience for clients.

The transaction proposed under the framework agreement is subject to the signing of final binding documentation, which is anticipated during 4Q22. Closing of the proposed transaction would be subject to customary closing conditions and regulatory approvals and would be expected to occur during 1H23.

Key Investment Bank Appointments

Michael Klein will step down from the Board of Directors, which he joined in 2018, to act as advisor to Group CEO Ulrich Körner, helping launch CS First Boston. It is anticipated that he will be appointed CEO designate of CS First Boston, joining in 2023 and pending regulatory approvals. During this transition period, David Miller will continue in his current role as Global Head of Investment Banking & Capital Markets, reporting directly to Group CEO Ulrich Körner, and supporting the establishment of CS First Boston as an independent bank.

In addition, Mike J. Ebert and Ken Pang are appointed co-Heads of the Markets business, effective from November 1, 2022. They will report directly to Group CEO Ulrich Körner. Mike J. Ebert currently serves as CoHead of the Investment Bank and Co-Head of Global Trading Solutions. Ken Pang currently serves as Co-Head of Global Trading Solutions and Co-Head of the Investment Bank for the Asia Pacific (APAC) region.

Christian Meissner, who has served as CEO of the Investment Bank and member of the Executive Board, has decided to leave the bank, effective immediately.

Louise Kitchen is appointed Head of CRU, effective November 1, 2022. She will report directly to Chief Financial Officer Dixit Joshi. Louise Kitchen most recently served as Head of the Capital Release Group and member of the Group Management Committee at Deutsche Bank. She previously held a number of other roles at the bank including the Head of Institutional & Treasury Coverage, Head of Strategic Implementation and Head of Commodities Structuring and Sales. Before joining Deutsche Bank in 2005, she worked for UBS Group.

Ulrich Körner, Group CEO of Credit Suisse, said: “I am delighted to congratulate Michael, Mike and Ken on their respective appointments. At the same time, I would like to welcome Louise to Credit Suisse and thank David for his continued support. Michael brings a vision and an esteemed track record and I am thrilled that he has agreed to take this essential position. Michael will play a substantial leadership role for Credit Suisse and in CS First Boston’s future. All these appointments bring a wealth of experience to our transformation. They have profound industry knowledge and I look forward to working more closely with all of them. At the same time, I would like to thank Christian for his contribution and wish him all the best for his future endeavours.”

Cost Initiatives / Capital

Accelerating Cost Transformation

Credit Suisse plans to take significant measures to reduce the Group’s cost base by 15%, or CHF ~2.5 billion, delivering a cost base of CHF ~14.5 billion in 2025. Of this, a reduction of CHF ~1.2 billion is targeted for 2023. A comprehensive cost transformation program has been initiated and will go deeper and further than the bank has previously indicated to substantially improve long-term efficiency while retaining a focus on strengthening risk management and investing in Credit Suisse’s core businesses. Key cost transformation initiatives include non-core unit rundown and business descoping, organizational simplification, workforce management and third-party cost management.

Credit Suisse has already commenced the implementation of cost reduction activities in the second half of 2022. Measures that are already mandated include a targeted 50% reduction in consultancy spend and a 30% reduction in contractor spend with the benefits expected in 2023. A headcount reduction of 2,700 full-time-equivalent employees (FTE), or 5% of the Group’s workforce, is already underway in 4Q22. Credit Suisse expects to run the bank with ~43,000 FTE by the end of 2025 compared to ~52,000 at the end 3Q22, reflecting natural attrition and targeted headcount reductions.

Strengthening and Reallocating Capital

Credit Suisse has announced its intention to raise capital with gross proceeds of CHF ~4.0 billion through the issuance of new shares to qualified investors and through a rights offering for existing shareholders, subject to approval at the EGM. These capital raises should support an increase in the 3Q22 CET1 ratio from 12.6% to a pro-forma CET1 ratio of ~14.0%. In addition, the successful execution of the Securitized Products exposure reduction and other planned divestments as well as RWA and leverage reductions from the new NCU are expected to release further amounts of capital to support the execution of the strategic transformation. Accordingly, the bank expects to maintain a pre-Basel III reform CET1 ratio of at least 13.0% throughout 2023- 2025 with an expected 2025 pre-Basel III reform CET1 ratio in excess of 13.5%.

Credit Suisse further intends to reallocate capital to its core, higher-return businesses. The share of RWAs in Wealth Management, the Swiss Bank and Asset Management, together with Markets, is estimated to increase to almost 80%5 by 2025, with the intention of growing the revenue share of these businesses to over 85%6 by 2025. CS First Boston is estimated to account for a further 9%7 of RWAs and ~14%8 of the revenue share by 2025.

Group Financial and Capital Targets for 2025

• Core Return on Tangible Equity (RoTE) of more than 8%; Group RoTE of ~6%

• Cost base of CHF ~14.5 billion; CHF 15.8 billion in 2023

• Group CET1 ratio of more than 13.5% pre-Basel III reform; at least 13.0% pre-Basel III reform in 2023- 2025

• To create value for shareholders through meaningful dividends from 2025 onwards; nominal dividend over 2022-2024

Credit Suisse will follow a clear execution roadmap with the announced restructuring of the Investment Bank, strengthened capital levels, and accelerated cost transformation. The bank is expected to deliver sustainable and attractive returns from 2025 onwards.

Source: Credit Suisse

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