After dual disasters, the Swiss bank looks more vulnerable than ever to a merger or acquisition. While the scenarios look sensible on paper, they mean months of pain for the bank and staff.

Less than three years after naming then-CEO Tidjane Thiam its banker of the year, «Euromoney» (behind paywall) suggested Credit Suisse had put itself in play: the Swiss bank's roughly $26 billion market cap, trading at less than 0.6 times book value, make it a bargain.

The Zurich-based bank, still unwinding $4.7 billion in wreckage from Archegos, is in limbo until incoming Chairman António Horta-Osório arrives in two weeks. Everyone is angry – shareholders robbed of most of their promised dividend, employees lifted of their bonuses, and regulators, who have apparently gone unheeded.

Doubts Over Resilience 

The 57-year-old Portuguese banker will oversee a no-holds-barred strategy review of the lender battered by the imploded hedge fund as well as serious missteps including Greensill. 

One of the scenarios Horta-Osório will be looking at is disposals. While no specific talks have been identified yet, even long-standing Chairman Urs Rohner has privately expressed doubt that the Swiss bank can continue to exist in its current form.

There are countless reasons why: Credit Suisse is too lightweight in each of its three main disciplines to be a global universal bank and one-bank has laid bare at times dramatic conflicts of interest are just two of them.

Questioning Diversification

Another is that Credit Suisse didn't generate enough capital to fund the growth it needs, even before Archegos hit its capital cushion (in fact, this is why the Swiss bank was the only one of 18 to be singled out two years ago by the U.S. Federal Reserve).

And perhaps most importantly, Horta-Osório isn't a huge fan of a diversified banking model: he views it as too expensive and complex, he told «Euromoney» on his way out of Lloyds, the U.K. retail lender he ran for the past decade.

Perennially Interested UBS

The under-fire asset management unit, which is emerging as a separate unit run by Ulrich Koerner, could flow into a European merger or tie-up: all the usual suspects are interested, according to an industry consultant (Credit Suisse is too busy fire-fighting to consider whether it will entertain any suitors)

An Amundi-style merger with DWS or with perennially interested UBS – or both, as finews.com has previously argued for, is an option. Not to neglect U.S. banks: both J.P. Morgan and Goldman Sachs have expressed interest in asset management deals.

Goldman Sachs' Ambitions

Credit Suisse's private banking arm would work well with Goldman's ambitions for wealth management; past speculation has also swirled around the Swiss bank and Julius Baer. Its investment bank, which potential acquirers view as little to no value, is less attractive due to few synergies. 

The idea of a heavyweight European counter competing with powerful U.S. investment banks is wishful thinking by politicians. The reality is that American banks benefit from a host of structural advantages, like a huge domestic market, less regulatory complexity, and more financial firepower.

Merger Bloodletting

Credit Suisse seems to have replaced Deutsche Bank as the bumbling sick-man of Europe's banks. Most of its options inevitably lead to a cull among its more than 16,000 employees in Switzerland. 

A three-way asset management tie-up between Credit Suisse, DWS, and UBS for example would be large enough to compete internationally but lead to enormous costs and overlap in staff.

«Friendliest» Suitors

The same is true for wealth management, where the argument to scale up is even weightier than in asset management. A full-blown banking merger of all parts – provided the Swiss regulator approves it – would be ruinous for Swiss jobs.

The «friendliest» scenario is a partial disposal to an international wealth manager like J.P. Morgan or Goldman Sachs. Or with Wells Fargo, which as finews.com suggested three months ago, is ready to grow in investment banking as well as wealth management after dragging itself out of several years of scandals.

 Additional reporting by Katharina Bart