November 20, 2012 3:03 pm

Q & A: Credit Suisse restructuring

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How dramatic is Credit Suisse’s restructuring? Talk of splitting off the investment bank sounds radical.

In reality, Credit Suisse is being far less radical than might appear to be the case at first glance. Yes, it is creating two divisions – private banking/asset management and investment banking. But the change really is in the combination of private banking and asset management. There are only a few tweaks round the edges with the investment banking operation.

Tweaks? That doesn’t sound very important.

CS would disagree. The bank sees the changes as important in at least three ways. First, the new structure, which also involves aligning regional operational management with regional legal structures, chimes with the demands of regulators around the world that businesses should be easily resolvable in times of crisis. Second, it allows the bank to extract some more efficiencies – cutting the jobs of regional bosses in Asia and Europe, and removing overlapping functions, potentially a few hundred jobs, in private banking and wealth management. Third, the process is being seen as Brady Dougan, chief executive, setting up the four men that now head the two divisions – two apiece – to compete to be his successor.

Is Mr Dougan about to go?

Nothing appears imminent. But bank insiders talk openly of the prospect that the chief executive could change in the next couple of years, to coincide with the timeframe on some of the bank’s targets, such as the SFr1bn ($1bn) cost cut ambition by 2015.

It all sounds perfectly rational. Why are the shares falling?

The threat of a US lawsuit over securities miss-selling cannot be helping. But the real answer is: CS is not UBS. There was a time when that was a good thing, given the turmoil of scandal and losses that the other Swiss bank had been through. But ever since last month when UBS announced a dramatic rejig of its investment banking operations, including a wind-down of its fixed-income business – resulting in a sustained jump in the share price (now about 17 per cent) – its rivals across the other side of Zurich’s Paradeplatz have had a bit of a chip on their shoulder. But dramatic strategy changes are not Mr Dougan’s thing. Instead Tuesday’s news is the third announcement in a drip-drip of strategic tweaks since the summer – in July, under duress from regulators, there was a SFr15.3bn capital raising plan; last month there were the cost cuts; and now the structural rehash.

Aren’t they ahead of the game, though?

Investors don’t think so. They see CS as determinedly sticking to the pre-crisis model of universal banking in the broadest sense – whereby even within investment banking there is an attempt to be all things to all men. The market believes only a few global banks have a chance of making it as that kind of all-rounder – in Europe, Deutsche Bank may be the only group that qualifies, given the ongoing strategic rethink at Barclays. Although Deutsche, too, has gone through its own recent round of cuts, that is aimed at removing inefficient silos, rather than pulling back from business areas as UBS has. In simple terms, CS still believes it can be a Deutsche and is resisting pressure from regulators and investors alike to become a UBS.

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