Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Shareholder activism is increasingly a fact of life for European companies, from Nestle SA to Danone SA, as wannabe Gordon Gekkos push managers to work harder at a time of economic recovery and cheap debt.

Banks, kept on a short leash by regulators and politicians, have been less fertile territory. Rabble-rouser Knight Vinke sold out of Switzerland's UBS Group AG in 2015 after a few years trying to break it up. But someone's decided to have another crack at one of its rivals.

Credit Suisse Group AG is being targeted by Rudolf Bohli at RBR Capital Advisors as ripe for a split, according to reports. Having three separate businesses in investment banking, wealth management and asset management would supposedly unlock more value than Credit Suisse's current strategy of keeping everything together, albeit with slimmer costs and fresh capital. 

Ripe for a Break-Up?
Credit Suisse has underperformed since Thiam's arrival, though the outlook is getting brighter
Source: Bloomberg

Asking a European (well, Swiss) bank to break itself up is hard enough at the best of times. After the financial crisis, there's some logic to the idea of separating under-performing and capital-intensive investment banks from more stable retail lenders that benefit from state guarantees. UBS and Barclays Bank Plc were at different times seen as candidates for a shareholder-driven stab at Glass-Steagall.

But the antis have always won out: The investment bank's funding costs would be too high; cross-selling would be squashed; clients would flee to another full-service bank. Bankers prefer to shrink to glory and wait for a rebound.

Sum Of Very Different Parts
Credit Suisse's estimated forward price-to-earnings multiples by division
Source: JPMorgan Research

Even by historic standards, though, RBR's campaign looks quixotic. The activist is said to have a 0.2 percent stake in the bank, worth about 100 million francs ($102 million) -- not very much in the grand scheme of things. And while the reported support of former Credit Suisse investment banker Gael de Boissard is juicy, given his departure not long after Tidjane Thiam's arrival as chief executive, some big shareholders are deriding the whole thing.

David Herro of Harris Associates told Bloomberg that Bohli's assumptions were "pie in the sky" and that it would be "unwise" to deviate from the present course. One analyst called it a "storm in a teacup."

This might be to do with bullishness around Credit Suisse, which just a year ago was suffering from the double-whammy of jittery financial markets and the unintended consequences -- i.e. losses -- from an attempt to aggressively shrink its balance sheet and dump assets.

Today, the bank looks healthier. It has raised $4 billion from shareholders, has started to deliver revenue growth, and trades at a book-value multiple in line with Banco Santander SA and BNP Paribas SA. While Thiam had envisioned a breakup of sorts by spinning out his domestic universal bank, that's been shelved. Rather like Deutsche Bank AG's change of heart on retail unit Postbank, bankers like diversification.

Wulf of Wall Street
Credit Suisse's price-to-book ratio is higher than European investment banks but lags U.S.
Source: Bloomberg

Nevertheless, Bohli merits a hearing. Credit Suisse's profit isn't shooting the lights out yet. Its return on tangible equity stood at 3 percent in the last quarter. The investment bank remains the "Achilles' heel," according to Societe Generale analysts, who warn of possible future losses on securitized products and leveraged lending.

Even if a radical breakup doesn't hold up, it would be good to debate whether there are advantages in being a conglomerate. A nudge in a more profitable direction wouldn't hurt.

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

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net