Credit Suisse's Investor Day signals a definitive departure from its traditional trading house ambitions. With the reduction of its bad debts and the expansion of its asset management it is starting to replicate its rival UBS.
Earlier this month Credit Suisse (CS) Chief Executive Tidjane Thiam referred to the UBS when it released its quarterly earnings. «I have the greatest respect for its leadership», the CS head told the media. «We basically pursue the same strategy and try to utilize the same opportunities.»
At Thursday's Investor Day Thiam has shown that the CS is now well on the way to becoming a «small UBS». For the first time Thiam is looking past the end of the turnaround and into 2019 and beyond, and outlined his vision for the strategic framework up to 2020.
Global Markets will rightly continue to be supported
To put it more clearly: This focus doesn't lie in the trading business where the CS, after its takeover of the First Boston Bank, was a major player for some two decades. Even now the Global Markets unit, given its staffing and capital creation, represents the second-largest position in its balance sheet.
Given the presentation to investors in London today, this should change in the future, though the activities and risks in the Global Markets area will continue to be supported. Any freed-up capital will initially though be used to expand asset management, as Thiam has previously stressed.
As finews.com has already reported, some 20 percent of the accumulated capital will be directed for reinvestment in its wealthy client business and in «related areas». This capital realignment is already underway as shown by the presentation (see graph below).
Pile of rubble getting smaller
An important element of this reallocation is the so-called Strategic Resolution Unit (SRU), or «Bad Bank», where CS has deposited its unsaleable toxic paper. This legacy of its high-risk banking experiment still drags on CS's profitability. By the end of this year the «Bad Bank» will have reached around $13.7 billion.
The reduction in these SRU losses is however making progress, helping to free up capital. Closing this unit in the not-too-distant future should bring CS far more financial flexibility. Thiam expects a loss of $1.4 billion in 2018. Thereafter things should improve quickly. The goal for 2019 losses has been pared to $0.5 billion from $ 800 million previously.
Investmentbanking for «Business Bank»
The plan is to reduce risk-weighted activities to $11 billion in 2018, compared with $54 billion in 2015. This will reduce considerably CS's refinancing costs, in addition to the ongoing lowering of debt in the Global Markets Division.
Reducing the «Bad Bank» burden will benefit the Investment Bank, as long as it underpins the goals of the «Business Bank». As is already well known, the CS wants to offer entrepreneurs a wide range of services, from asset investment to merger and acquisition advice.
IST shows what it should become
This all-encompassing service will be further improved, with the different business areas working more closely together, according to Thursday's presentation. The services offered by the launch of the International Trading Solution (IST) shows where the show is headed. Global Markets, the international Private Banking business, as well as the Swiss Universal Bank will work together to produce solutions for ultra wealthy clients.
The once mighty investment bank serving the private bank: This is exactly what is happening now at UBS.
