According to those involved, the $54bn credit Suisse lifeline that was negotiated by the Swiss central bank Wednesday night was intended to act as a “circuit breaker” for the lender’s woes.
However, shares of the bank were still trading at 11 percent below their opening price on Thursday. It was also very minimal in terms of the drop in credit default swaps, a measure investor bearishness, and bond yields.
Investors don’t see the bank’s liquidity as its main problem. They worry that the bank’s business model is not profitable. This concern would only be amplified if clients continue to withdraw assets.
Consequently, questions about the future of the Swiss bank are being raised following the collapse and announcement by Credit Suisse that it would not increase its investments.
If deposits continue to be pulled, there are options: a complete dismantling of its radical restructuring, spin off its Swiss unit, or a takeover.
Credit Suisse’s largest shareholder, a current large shareholder, said that the central bank intervention had relieved some immediate pressure on the group but that it needed to take the time to make deeper changes.
He said, “There’s a scenario where they muddle along like this, and maybe that gets them through the next few years or even a year — but that’s very risky.”
They will be vulnerable if they are subject to unexpected events. It’s a story of untenable equity.
Credit Suisse executives stated that they intend to execute a restructuring plan. This is meant to shift capital and resources away the investment banking arm, which is losing, and instead towards domestic wealth and asset management units.
Investors remain cautious, particularly because of the uncertainty surrounding the sale of the bank’s assets. It was reported this month that Harris Associates, a long-standing shareholder, had decided to sell its entire position in protest at the “cumbersome” and much more expensive plan to seize the investment bank.Changes in direction would be a third strategic plan for group within less than 18 months. This would impact the credibility of Ulrich Korner, chief executive, and the management team.
Some board members have begun to question the necessity of it.
The Credit Suisse board could also revisit the plan of former chief executive Tidjane Thiam, and spin off the domestic universal banking institution.
Thiam was close at listing 25% of the business in 2017, but the deal was canceled after investors and board members became hesitant about selling the bank’s “crown Jewel”.Analysts estimate that selling off the Swiss unit could raise up to SFr15bn — nearly twice the bank’s current market value of SFr7.7bn.
This would be a major departure from the restructuring plan that places the Swiss business and wealth management arms at the center of what is internally called the “new Credit Suisse”.
It would also end the bank’s 167-year tenure as a national champion dating back to its days of financing Swiss railways and creating its currency.
It is possible that rival investment groups or other investment groups may be interested in purchasing the bank’s SFr402bn Asset Management Division. This division has survived the storm from its links to specialist finance company Greensill Capital relatively unscathed.
On Wednesday, Kian Abouhossein, JPMorgan’s analyst, stated that Credit Suisse’s most likely fate was to be taken over by UBS in Zurich.
A merger of two Swiss banks with the largest assets has been in discussion for a long time , but fear of antitrust obstacles has stopped talks from moving forward.Yet Credit Suisse’s current plight has led to speculation that the old plans could be dusted off if regulators felt it was the best way of stabilising one of the country’s most important financial institutions.
A person involved in UBS’s wargaming last month said that the bank was still on alert for a “999”, emergency rescue call from Swiss authorities. They stated that the country was committed to a 2-bank model but they would not be foolish to prepare for it.
Abouhossein’s scenario suggests that UBS would take over the Swiss business of Credit Suisse, wind down the investment bank, and keep the wealth and asset management arms.
UBS executives are focused on building the US wealth business and keeping up with Wall Street bank valuations. A Credit Suisse acquisition would not be distracting.
The person responsible for UBS strategy stated that UBS would not be interested in UBS taking it on. “It would create too many risks in one entity and regulators would not like it,” he said. They would create something that cannot be destroyed.”
Deutsche Bank is another potential tie-up.
According to a source familiar with the discussions within the German lender, executives were more interested in acquiring a portion of the business than they were actively seeking a deal.
The Swiss National Bank might feel that it is limited by its options if no buyer is found.
In extreme cases, the central bank might step in to guarantee deposits, take complete control of the business, and sell off the remaining parts.
However, such a move would be politically dangerous due to the impact on Swiss taxpayers and the shameful outcome of one of the largest companies in the country being taken down.
“Regulators will be closely watching whether the Credit Suisse plan shows signs of functioning — if it is not, they’ll act,” stated a senior executive from a rival Swiss bank. Credit Suisse does not have control over its destiny.