Credit Suisse a Latecomer to UBS's Game

Investment banking is facing serious headwinds.

It took him almost a year, but Tidjane Thiam has gotten the message: Credit Suisse needs to catch up to UBS.

The lender is accelerating cuts at its investment banking unit, five months after it announced an overhaul. Its stock dropped below its Zurich-based peer for the first time in over a decade in February after its worst quarterly loss since the 2008 financial crisis.

Swiss Duo

UBS shares have dropped about 1 percent in the past five years, compared with 61 percent for Credit Suisse

Source: Bloomberg

The different paths are a testament to Credit Suisse's lag in recognizing it needed a different business model in a world constrained by much higher capital requirements. UBS started making that shift in 2012, when Chief Executive Officer Sergio Ermotti scaled back parts of its fixed-income business and pivoted toward private wealth management, a business it dominates worldwide. These days, its personal and corporate banking unit ``leverages the cross-selling potential of UBS's asset-gathering and investment bank businesses,'' according to its 2015 annual report.

No Deal

Credit Suisse's participation in global equity offerings has plunged

Source: Bloomberg

That means it started putting more of a focus on managing the money of company founders, and then in theory migrated to also managing those companies' bond and share sales. At UBS, equity and debt capital markets bankers often meet the chairman of a company rather than its chief financial officer when they're pitching a deal. Its private banking arm is also a big buyer of investment banking products. That strategy has allowed the firm to shed staff in various other parts of the business and exit unprofitable areas, something Credit Suisse hasn't done fast enough.

Not only has Credit Suisse failed to shift the focus to private wealth management as quickly, but it's also lost ground and scale in investment banking. The last time it featured among the 10-biggest managers of bond sales denominated in euros, dollars or yen in emerging markets was 2011, according to data compiled by Bloomberg. The five years before that, it was never out of the top 10 and in 2006, it ranked third.

Dwindling Share

Emerging-market bond sales in dollars, euro or yen led by Credit Suisse fell 36 percent, even as the total amount of securities increased

Source: Bloomberg

* Values are indexed for comparability.

Some of Credit Suisse's issues can be put down to bad timing. Thiam's call for a change in strategy in October toward wealth management wasn't opportune. Chinese markets were recovering from a major shake-out and investors the world over had had their confidence in Asia rattled. Southeast Asia meanwhile, the focus for a lot of the bank's business, was suffering from big declines in the local and foreign-currency values of its assets.

On top of that, private banking is a scale business, and one that takes years to build. With about 2.7 trillion Swiss francs ($2.8 trillion) in assets globally, UBS's funds under management dwarf Credit Suisse's, at about 1.3 trillion Swiss francs.

It's clear that handling the money of the very wealthy, especially the very wealthy in Asia, at a time investment banking is facing such strong headwinds is the right strategy. (The Asia-Pacific private banking units of both UBS and Credit Suisse chalked up net inflows in the last quarter of 2015 even as volatility roiled other parts of the business.) But whether Credit Suisse can catch up to UBS this late in the game is less so.

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the authors of this story:
    Christopher Langner in Singapore at
    Nisha Gopalan in Hong Kong at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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