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Credit Suisse announces $6.3 billion capital hike to fund new strategy

ZURICH: Credit Suisse Group AG Chief Executive Officer Tidjane Thiam Earnings News Conference & InterviewZURICH: Credit Suisse Group AG Chief Executive Officer Tidjane Thiam Earnings News Conference & Interview
Tidjane Thiam will increase Credit Suisse's focus on Switzerland and wealth management in Asia as it scales back the securities unit. Photograph by Alessandro Della Bella — Bloomberg via Getty Images

Credit Suisse AG (CS) has set out plans to raise 6.05 billion Swiss francs ($6.3 billion) in fresh capital, as new chief executive Tidjane Thiam boosts the Swiss bank’s financial strength to underpin its biggest overhaul in almost a decade.

Credit Suisse is emphasising wealth management and growing in Asia, while shrinking its investment bank, echoing moves by rival UBS AG (UBS) and other banks to cut investment banking, where tougher regulations are squeezing profitability.

Thiam also announced changes on Wednesday to top management and said he will float shares in its domestic Swiss bank, as he set out his vision for Switzerland’s second biggest bank almost four months into the job.

Third-quarter results, which Thiam described as “not very good”, underscored the Zurich-based bank’s need for change. Third-quarter pre-tax income fell 34% to 861 million francs on the year before, primarily reflecting an 8% drop in net revenue.

“That should validate in a way the strategy and confirms some of the insights that have guided us in the strategy,” Thiam told reporters. “The ambition in this strategy is to grow fundamentally. To grow and to resolve the capital issue for good.”

Credit Suisse’s capital position is an area where it trails rivals and has been a persistent concern for investors.

Credit Suisse shares fell as much as 4.5% after the statement, but some analysts were positive about the strategy. “All in, we see the announcements as positive,” said Jernej Omahen at Goldman Sachs.

Omahen said the capital increase was in line with expectations and the cost-cut plans were credible, adding the plans for a flotation of the Swiss arm were a positive surprise. The earnings miss still came as a disappointment, though, underlining the scale of the challenge facing Thiam.

Thiam said Credit Suisse would put more focus on managing the fortunes of the world’s wealthy, especially in emerging markets, and will reduce the size of its investment bank and cut CHF2 billion francs in annual costs.

Pierre-Olivier Bouée, Iqbal Khan and Lara Warner were among the names promoted to Credit Suisse’s executive board, while Gaël de Boissard, Hans-Ulrich Meister and Robert Shafir and others will leave the bank’s top management team.

Credit Suisse said it plans to cut gross costs by CHF3.5 billion by the end of 2018 and will invest CHF1.5 billion in growth initiatives, to reduce the cost base to between 18.5 billion and 19 billion.

The bank will reduce the number of its staff in Switzerland by a net 1,600 over the next three years, and will cut the number of its investment bank staff in London. Thiam estimated 1,800 of its London-based staff did not need to be in such a costly location.

The bank aims to raise CHF1.35 billion from the private sale of shares to a number of investors and a further CHF4.7 billion via a rights issue to existing investors. Expectations had been for a capital increase of between 5 and 10 billion francs.

Thiam said the bank’s common equity capital adequacy ratio should rise to 12.2% of risk-adjusted assets, and the bank aims to keep that ratio above 12%. Since the financial crisis, Switzerland has imposed some of the toughest capital requirements in the developed world on CS and UBS, to ensure that its small population isn’t forced to stand behind their vast global balance sheets.

“The strengthening of our capital position today will allow us to be in control of our own destiny and drive a strategy aimed at making Credit Suisse a clear leader in private banking and wealth management,” he said.

Thiam also aims to streamline the bank by creating three geographic divisions: a Swiss universal bank, Asia Pacific, and International wealth management; and two investment bank units: global markets, and investment banking and capital markets.

He also intends to reduce capital used by the investment bank, mainly in its “macro” businesses, where the bank plans to reduce risk-weighted assets by 72% by year end.