Credit Suisse to Revamp Investment Banking, Private Bank

Credit Suisse to Split Investment Bank in Two Units
Credit Suisse plans to focus on its equities/advisory and fixed income units. Photographer: Gianluca Colla/Bloomberg

Credit Suisse Group AG, the second-largest Swiss lender, named Gael de Boissard co-leader of the investment-banking division and said it will merge asset management with the private bank to speed cost cutting.

De Boissard, 45, will join the executive board and lead the fixed-income business at the investment bank, while current chief Eric Varvel, 49, will head equities and advisory, the Zurich-based company said in a statement today. Three executive-board members, including Walter Berchtold, the chairman of private banking, will leave as part of the revamp.

Chief Executive Officer Brady Dougan reaffirmed Credit Suisse’s commitment to a fully-fledged investment bank three weeks after UBS AG, the biggest Swiss bank, announced it would cut 10,000 jobs and shrink debt trading to focus on money management. Dougan said Credit Suisse has already adapted the securities division to stricter regulation and will look to expand the debt unit as some rivals retrench.

“We’re moving into a world where the structure is much less that everybody is going to be in every business,” Dougan, 53, said in an interview today. “The fixed-income business particularly is going to have to dramatically change. Our market shares in fixed-income business are stable and growing.”

Credit Suisse fell 1.7 percent to 21.19 francs in Swiss trading. The stock has declined 4 percent this year, compared with a 29 percent gain in UBS.

Cost Targets

The reorganization will create a firm with two divisions, investment banking and wealth management, that would each be expected to produce half the profits of the group when markets normalize, Dougan said. The structure will be effective Nov. 30, the bank said.

The investment bank contributed about 39 percent to the group’s pretax profit in the first nine months of this year. The move will also accelerate and potentially increase the cost savings Credit Suisse is targeting, Dougan said.

Credit Suisse said last month it will trim a further 1 billion francs ($1.06 billion) in annual costs by the end of 2015, adding to a 1 billion-franc savings program from July and a 2 billion-franc expense reduction achieved since last year. Dougan declined to say how much the bank expects to save through the revamp or how many jobs may be cut.

Integrated Bank

“The full executive board is committed to an integrated bank structure and driving close collaboration across our divisional and regional core franchises,” Dougan and Chairman Urs Rohner said in a memo to employees. “We will reduce complexity, be more coordinated between businesses and more agile as a firm.”

Hans-Ulrich Meister, 52, who headed the private bank, and Robert Shafir, 54, who headed asset management, will lead the combined private banking and wealth management unit, which will include the Swiss trading business. Business heads in wealth management and in asset management will continue to report to Meister or to Shafir, respectively.

The reorganization “is mostly about combining activities and sharpening the focus on the cost-saving programs, and that’s really indicative of the wider pressures in the industry,” said Otto Dichtl, managing director at Knight Capital Europe Ltd., in an interview with Bloomberg Television’s Linzie Janis.

UBS Cuts

UBS plans to trim about 100 billion francs of risk-weighted assets by the end of 2017, after already cutting a similar amount over the past year. The investment bank will focus on its advisory businesses, equities, foreign exchange and precious metals, while keeping limited capabilities in rates and credit.

UBS last month made 49-year-old Andrea Orcel, co-CEO of the investment bank since July, the sole head of the unit. Carsten Kengeter, 45, stepped down from the executive board to take charge of winding down the fixed-income businesses UBS is exiting.

Analysts including Kian Abouhossein from JPMorgan Chase & Co. and Huw van Steenis from Morgan Stanley said after UBS’s move that Credit Suisse would also benefit from scaling down the capital-intensive debt businesses to boost the investment bank’s return on equity.

Dougan said Credit Suisse’s management expects return on equity at the investment bank can be pushed up to 15 percent through the cost cuts and risk-weighted asset reductions the bank has announced, though investors aren’t yet convinced. The bank’s Basel III normalized after-tax ROE at the investment bank was 11 percent for the first nine months of this year.

Executives Depart

The four managers heading the two divisions at Credit Suisse will also have regional responsibilities, reducing the number of people on the executive board to nine from 11.

Varvel will run the Asia-Pacific region, while de Boissard will serve as the head of Europe, the Middle East and Africa. Osama Abbasi, 44, and Fawzi Kyriakos-Saad, 50, who headed those regions since 2010, will leave the company, as will Berchtold, 50, who became chairman of private banking in August 2011 as Meister took charge of the business. Meister and Shafir will continue to head Switzerland and the Americas, respectively.

London-based de Boissard will additionally be CEO of the bank’s U.K. entities, Credit Suisse International and Credit Suisse Securities (Europe) Ltd.

De Boissard, a French national, has held various senior roles within fixed income since joining Credit Suisse First Boston in 2001 from New York-based JPMorgan, where he ran the European debt business. He joined JPMorgan’s Paris office in 1990 and held various positions in trading through the years. De Boissard has a degree in Russian from the University of Volgograd and a math and civil engineering degree from the Ecole Polytechnique in Palaiseau, France.

Asia Appointment

Helman Sitohang, 47, was named head of the investment bank in the Asia-Pacific region, according to an internal memo confirmed by Credit Suisse spokeswoman Victoria Harmon. Sitohang will continue to be based in Singapore in this newly-created role, which comes in addition to his current responsibilities as the CEO for Southeast Asia and co-head of the emerging-markets council, according to the memo.

The more “compact” management structure will allow Credit Suisse to better execute on its cost targets and meet the demands of regulators, Dougan said.

“This allows us to have a simpler, more straightforward structure for the business,” he said. “Regulators are increasingly focused on legal-entity management and in addition, as you know, through the whole resolution regime, regulators are focused on simpler structures for the business overall.”

Asset Management

Within the new private banking and wealth management division, Meister will be responsible for running client businesses in Switzerland, Europe, the Middle East, Africa and Asia-Pacific, while Shafir will be responsible for products and lead the client business in the Americas. Meister and Shafir will be jointly responsible for the Swiss trading business and the unit that caters to ultra-high-net-worth individuals.

Asset management is now the smallest of Credit Suisse’s three divisions and contributed 13 percent to the group’s pretax profit in the first nine months of the year. The bank agreed in 2008 to sell part of its traditional asset-management business, which oversaw about 75 billion francs, to Aberdeen Asset Management Plc. The unit had 368.9 billion francs under management at the end of September, of which 141.8 billion francs is managed for private-banking clients.

‘Close Links’

Credit Suisse said in July it would sell two private-equity units to comply with new limits on investments in hedge funds and private-equity funds. The bank also said last month it would try to sell the exchange-traded funds business, which had 16.1 billion francs under management at the end of September.

The bank said a year ago it planned to boost pretax profit at the private-banking division by 800 million francs by 2014. The company, which already integrated its Clariden Leu private bank with the rest of wealth management, said this month it plans to merge retail and private-banking units in Switzerland from next year, cutting 300 jobs and saving about 50 million francs in annual costs.

“The merger of asset management and wealth management was natural given the close links,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “Clearly the Swiss business is being ring-fenced under Meister.”

Dougan said Credit Suisse decided to integrate the Swiss trading businesses into the combined money-managing division to improve execution for clients and reduce costs rather than defining which businesses would be systemically-relevant.

“Hopefully the last thing people are thinking with us is resolvability and what might happen,” Dougan said.

The changes “will create one of the world’s leading integrated wealth management businesses and one of the first global investment banks that is in alignment with the new regulatory reality,” Rohner, 52, said in the statement. “We are convinced they will help us focus on our strengths in our chosen businesses and markets globally.”

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