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Credit Suisse investment bankers bracing for brutal cutbacks

ZURICH (BLOOMBERG) – The gloves are finally off in Zurich. After years of past Credit Suisse chief executive officers tinkering at the edges of a misfiring machine that lost US$1 billion (S$1.39 billion) in the first six months of 2022, bankers now fear a torching of much of the division.

The Swiss bank’s decades of duelling with the titans of Wall Street for a place among the investment bank elite are potentially over.

Conversations with about a dozen Credit Suisse dealmakers, traders, financiers and wealth advisers, who asked to remain anonymous, depict an investment bank braced for a reckoning. As much as two-thirds of the unit could eventually be on the block in the most extreme case, senior figures say. From now on, CEO Ulrich Koerner and chairman Axel Lehmann want the firm to be an asset gatherer for the world’s rich, and a Swiss bank serving the nation’s corporate champions.

One possibility is that the investment bank ceases to exist as a separate division at some stage, other insiders say, with the remnant parts needed for asset and wealth management and the Swiss bank folded into those units. More than 30 years after the takeover of First Boston gave Credit Suisse real Wall Street clout, that would signal a historic retreat.

In the early 2010s, Credit Suisse at one point ranked as a top-five global investment bank, according to Bloomberg Intelligence data, as it took on the likes of Goldman Sachs and JPMorgan Chase & Co. Its disastrous backing of Archegos Capital Management and Greensill Capital, two finance firms that blew up spectacularly last year, ended most ambitions to that status.

Only the mergers and acquisitions advisory team that traces its roots back to that First Boston deal looks relatively secure, leaving question marks over fixed-income trading, leveraged finance and debt capital markets, as well as equity capital markets. Equities-trading revenues have all but disappeared after the bank’s exit last year from prime broking, which finances hedge funds. The securitised products unit, which trades bundled home and consumer loans, is seeking partners, aided by bankers from Centerview.

At a recent town hall meeting for Credit Suisse’s global investment bank hosted by Mr David Miller, head of banking, management said it wanted a team that was capital light and advisory focused, according to people present.

“There comes a point where you either have a large investment bank with which you can compete against the big players, or you’re just too small and therefore it’s best to exit,” said Mr Vincent Kaufmann of Ethos Foundation, which represents 3 per cent-5 per cent of Credit Suisse’s voting rights. It is a view echoed by the biggest shareholder: “At some point they either have to fix it or look for other options,” David Herro of Harris Associates told Bloomberg TV on Friday.

A Credit Suisse spokesman said: “We will update on progress on our comprehensive strategy review when we announce our third-quarter earnings; any reporting on potential outcomes before then is entirely speculative.”

One deal that doesn’t look imminent is a Credit Suisse takeover – even if bankers are pitching it – though sales or spinoffs could be considered for any parts of the investment bank that retain value. Insiders reckon that the Swiss authorities want to give Mr Koerner and Mr Lehmann time to deliver their national solution of a Swiss bank, plus wealth and asset management. Regulators want an orderly restructuring that does not jeopardise the country’s No. 2 lender.

“For Credit Suisse, it is like a football team,” said Arturo Bris, finance professor at IMD Business School in Lausanne. “It depends on the loyalty of the players. If it can depend on people doing a good job at lower pay, then it has a chance. Otherwise, I am worried.”