Oct 29, 2022 - Economy

The end of the line for Credit Suisse

Data: FactSet; Chart: Axios Visuals
Data: FactSet; Chart: Axios Visuals

Up until this week, Credit Suisse could credibly lay claim to being a bulge-bracket bank, alongside maybe eight others in the world. It might have been a troubled bank, but it was huge, and tried to offer a full menu of financial services to its customers.

Why it matters: Now, the bulge bracket has shrunk by one bank. Credit Suisse has announced that it's breaking itself up into four parts, in an echo of how the story of GE is ending with a whimper.

Between the lines: Credit Suisse was forced into this drastic action by its woefully low share price. The market value of the company is less than a quarter of its book value, or its assets minus its liabilities. That's a clear sign that the market sees no meaningful profits in the foreseeable future.

How it works: The bank is being split into four unequal parts.

  • The Securitized Products Group, which turns corporate cash flows into securities, is being sold to Apollo and Pimco.
  • A "bad bank," or "non-core unit," is being created to hold things like the emerging-markets investment banking business until they can either be sold or wound down to nothing.
  • A new boutique investment bank, CS First Boston, is being created to compete with the likes of Jefferies, Lazard, or Evercore. The hope is to spin CSFB off for billions of dollars to outside investors.
  • The remaining Credit Suisse will include the global wealth management business, the Swiss retail bank, and the existing trading operation.

By the numbers: If the break-up causes the bank to trade at even half its book value, that would still mean the share price more than doubles.

  • The real hope is that both CS First Boston and Credit Suisse will be worth more than Credit Suisse is worth today. It's a classic sum-of-the-parts move, one that generally only makes sense when a company's share price is extremely depressed.

Of note: The architect of the plan is Michael Klein, who as part of his remit needed to find a CEO to run CS First Boston. In an echo of Dick Cheney, he chose... himself.

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