CREDIT SUISSE REORGANIZES ITS INVESTMENT BANK, SECOND QUARTER BETTER THAN EXPECTED

by Brenna Hughes Neghaiwi

ZURICH (hooly-news.com) – Credit Suisse on Thursday announced the merger of its market and investment banking activities into a single division, the first major strategic move by chief executive Thomas Gottstein.

Switzerland’s second-largest bank also reported a 24% increase in second-quarter net profit to 1.162 billion Swiss francs (1.08 billion euros), exceeding the average estimate of 700 million. Swiss francs from analysts’ consensus provided by the bank.

“Today we are announcing a series of strategic initiatives aimed at improving effectiveness and generating efficiency gains,” said Thomas Gottstein, who became the group’s chief executive in February, revealing plans to create ‘a major global investment bank.

The integration also includes its activities in the Asia-Pacific markets, which previously fell under a regional division.

“These initiatives should also help make Credit Suisse more resilient when markets are uncertain while allowing it to take advantage of economic conditions when they are more positive,” Thomas Gottstein said in a statement.

The bank announced that it aims to generate reductions in the annualized expense rate of around CHF 400 million per year from 2022 through these various strategic measures.

Credit Suisse also said it plans to pay the second half of its 2019 dividend later this year, adding that its board will revise its share buyback plans in due course.

The decision to create an investment bank at the global level marks a break with the strategy of the previous CEO, Tidjane Thiam, who refocused activities on wealth management and divided the investment bank into two entities.

Criticized for the cumbersome nature of its capital-intensive investment operations, which generally generate much less income than wealth management, Credit Suisse, however, felt that these activities were necessary for its very high net worth clients.

In the second quarter, market and investment banking activities saw their profits grow on the back of the high volatility of the financial markets and high demand for corporate finance in the context of the health crisis.

Credit Suisse posted a 71% increase in profits from its market activity, fueled by a 42% jump in income from bond market trading.

Investment banking profits also jumped, with a sharp increase in profits from primary equity and bond market activity and mergers and acquisitions advice.

The wealth management division, however, saw its profits drop slightly, the international branch showing a 22% drop in profits in a context of low interest rates and as the crisis forced provisions for bad debts.

The Asia division for its part achieved a record quarterly profit of 298 million Swiss francs, thanks to the investment bank.

(French version Kate Entringer, edited by Blandine Hénault)