Credit Suisse Seeks Premium in Swiss Unit Sale, Illy Saysby
Bank says planning to hold initial public offering in 2017
Credit Suisse to leverage market value to buy Swiss assets
Credit Suisse Group AG’s plans for its new Swiss unit are “advanced,” and the bank may seek as much as twice the book value of the domestic business in an initial public offering, said Marco Illy, who heads the Swiss investment bank.
Illy, who sits on the Swiss unit’s management board, said in an interview that he expects investors to pay a premium based on studies of about 30 comparable, universal European banks, those offering the gamut of services from consumer lending to asset and wealth management.
“Similar businesses trade at, conservatively, somewhere between 1.5 to 2 times book,” Illy said Tuesday on the sidelines of an event in Zurich, declining to elaborate on the banks used in the analysis. Valuing the Swiss unit at that level would also help boost prices in the parent company, whose stock was trading at 21 francs at 1:15 p.m. Thursday in Zurich -- on par with its tangible book value, according to data compiled by Bloomberg.
Chief Executive Officer Tidjane Thiam announced plans in October to sell 20 percent to 30 percent of its Swiss universal bank before 2018 for as much as 4 billion Swiss francs ($4.06 billion). The IPO is part of an overhaul that includes a 6 billion-franc share sale completed this month, a downsized investment bank and a bigger focus on wealth management.
The bank intends to leverage the Swiss unit’s shares to reward employees who receive part of their bonuses in stock and to acquire some of the country’s private banks, many of which are struggling to remain profitable. Illy declined to say if Credit Suisse was already in talks but said the IPO would unlock purchase power.
“When you get that value uplift, then suddenly you can use your stock as acquisition currency,” he said. “But first you have to have the acquisition currency before you start acquiring.”
A lot depends on which parts of the bank end up in the unit and on capital requirements, said Dirk Becker, a Frankfurt-based analyst at Kepler Cheuvreux. “I would tend toward saying that the business will be valued higher” than Credit Suisse overall, he said. ABN Amro Group NV could be a comparable peer, along with CaixaBank SA in Spain, Lloyds Banking Group Plc and listed Swiss cantonal banks such as St. Galler Kantonalbank AG and Banque Cantonale Vaudoise.
Planning is “pretty advanced,” Illy said. The bank will release more details in February, when it reports earnings by unit under the new structure for the first time. The IPO is on track for 2017, barring adverse market conditions, he said. Much could change by then. UBS Group AG, Credit Suisse’s Swiss competitor, has seen its shares rise 65 percent since Oct. 1, 2012, the month it announced a strategy emphasizing wealth management.
Europe has seen just four IPOs in the financial industry since the crisis, according to data compiled by Bloomberg. The most recent was ABN Amro, a state-owned consumer lender focused on the Netherlands. The government sold a 20 percent stake last month, valuing it at 16.7 billion euros ($18.3 billion). The Dutch bank began trading at about 1.1 times book value and was trading Thursday at 1.15 book value.
The 46 companies tracked by the STOXX Europe 600 Banks Index trade at a valuation that’s about the same as their tangible book value, Bloomberg data show. Julius Baer Group Ltd., a private bank, trades at the highest multiple of 4.1 times tangible book, ahead of Swedbank AB with a multiple of 1.9 times.
Illy said the Swiss bank will seek to build ties with the country’s estimated 500,000 entrepreneurs that would evolve from loans for their business into investing their wealth and then planning for succession as they get older. This mirrors the bank’s strategy in Asia, where it is also targeting entrepreneurs.
Credit Suisse can profitably do succession deals for as low as in the “double-digit millions,” Illy said, declining to say how many entrepreneurs in Switzerland fall into this category. The bank is particularly interested in these deals because they pay off in several ways, from arranging a new future for the business to providing financing for potential buyers and then managing the windfall, he said.
Credit Suisse, which weathered the 2008 global financial crisis without government aid, has reorganized part of its legal structure in recent years under Swiss rules to prevent future bank failures from posing a threat to the wider economy. The changes entailed plans to fence off its Swiss operations to make them easier to salvage in a crisis.
The new system cuts both ways. As an independent unit, the Swiss business faces some of the same challenges as its parent, including the strong franc, negative interest rates and compliance costs. Switzerland recently introduced new too-big-to-fail rules requiring Credit Suisse and UBS to set aside more and higher-quality capital.
An eventual increase in interest rates will be a “big earnings lever,” for the Swiss unit, Illy said. “Once you have a situation where interest rates turn from negative to positive, that is a huge revenue uplift.”