Thiam `Reboot' Fails to Impress as Credit Suisse Taps Investors

  • Thiam announces strategy to expand in Asia, emerging markets
  • Plans to IPO Swiss unit to create `currency' for purchases

Tidjane Thiam, Credit Suisse Group AG’s new chief executive officer, pledged to prioritize wealth management over investment banking and asked investors for 6 billion Swiss francs ($6 billion) of capital as he put his imprint on Switzerland’s second-largest bank.

While his multi-year plan, presented in London on Wednesday, contained few big surprises, the capital call and prospect of a lower dividend discouraged investors, who also questioned how Thiam will meet his goals. The shares fell 3.6 percent.

“The market’s reaction is ‘yes, we like what you’re doing, but show us the money,”’ said Andrew Parry, the head of equities at Hermes Investment Management, in an interview with Bloomberg Television. “They’ll have to deliver on that.”

Thiam, recruited in July to rebuild investor confidence, is seeking to improve returns squeezed by tougher capital demands and record-low interest rates. He faced pressure from investors to shrink the capital-hungry investment bank more aggressively than his predecessor, Brady Dougan, and increase reliance on managing money for affluent families and business owners.

“We are rebooting the company,” Thiam, 53, said in a Bloomberg Television interview with Francine Lacqua on Wednesday. Later, he told investors the day’s share price decline was a “reasonable trade” for solving the firm’s capital issues. “We hear the skepticism, but we have a culture of delivery,” he said. 

Swiss IPO

Thiam said he would expand in wealth management, especially in Asia, and hold an initial public offering of the Swiss business by 2017, in part to ease potential acquisitions. He plans to close parts of the investment bank, cut its risky assets, and place the unit at the service of wealth management clients.

The company reported third-quarter earnings that missed analysts’ estimates, in part because of a loss at the investment bank.

Credit Suisse set a goal to more than double pretax profit from its Asia-Pacific unit to 2.1 billion Swiss francs by 2018 and increase earnings by more than half from its International Wealth Management unit, which covers Europe, Latin America and Africa. 

It intends to invest 1.5 billion francs to spur growth, partly offsetting 3.5 billion francs of planned cost savings. Some 5,600 jobs will be eliminated across the U.S., the U.K. and Switzerland. The restructuring charges mean 2016 “will be not a good year,” Thiam told investors.

Credit Suisse aims to pay out 40 percent of the 23 billion francs to 25 billion francs of excess capital it expects to generate through 2020. Nomura Holdings Inc. analysts led by Jon Peace said the payout would be seen as disappointing.

Nice Suit

Even as Thiam announced reductions to the securities unit, he said Credit Suisse has to keep an investment bank to serve its ultra-wealthy clients through lending, trading, foreign-exchange and capital-markets services. A super-rich client can bring in $50 million to $60 million a year in fees, Thiam said in the interview.

“If all you do is take an ultra-high-net-worth individual to lunch with a nice suit -- or a nice dress if you are a lady -- someone will eat your lunch,” Thiam said. “These people, when they want to trade in equities, they want the best equity house in the world.”

Credit Suisse is one of a pack of international wealth managers chasing the richest families in Asia, and trails UBS Group AG and Citigroup Inc. in private-banking assets under management there, according to data from Private Banker International, a trade publication.

“Everybody is trying to do the same there,” said Andrea Williams, a portfolio manager at Royal London Asset Management Ltd.

In emerging markets, most of the wealth growth is newly created by entrepreneurs and is “up for grabs,” Thiam told investors.

Swiss Deals

In Switzerland, foreign banks are exiting and some small firms are seeking buyers as tax compliance, regulation, the strong franc and low interest rates squeeze margins.

Credit Suisse aims to sell 20 percent to 30 percent of its Swiss bank in an IPO, estimating the sale would raise between 2 billion francs and 4 billion francs. Selling a stake will crystallize the unit’s value, which is often overlooked, Thiam said.

There’s a “big consolidation opportunity in the Swiss market,” he said. “Having a quoted company gives us currency to play in that game.”

‘Unique Proposition’

About 90 Swiss private banks managed 15 billion francs or less, presenting a “significant opportunity” for Credit Suisse to either provide them with services, or acquire them, according to an investor presentation. Credit Suisse will hire about 80 relationship managers to target high-net-worth individuals for the Swiss business.

“The Swiss IPO is really quite unusual,” said Christopher Wheeler, an analyst at Atlantic Equities LLP in London. “It will be a unique proposition, but I am not sure what they will use the acquisition currency for. This will probably get people talking about an acquisition of Julius Baer, a story that has been doing the rounds in Zurich.”

Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, has sought to quash speculation over the past 14 months that it might be the subject of a takeover by Credit Suisse, insisting it’s not for sale.

Before it's here, it's on the Bloomberg Terminal.