Credit Suisse: Can the Bank Reinvent Itself and Avoid a Takeover?

Credit Suisse: Can the Bank Reinvent Itself and Avoid a Takeover?

Credit Suisse, a Swiss multinational investment bank, has been facing a series of challenges in recent years. The bank's troubles started with the revelation of fraud at its supply-chain finance unit, Archegos Capital Management, in March 2021, which led to massive losses. In addition, the bank has been facing regulatory issues and lawsuits related to its involvement in the 1MDB scandal, a corruption scandal involving a Malaysian state fund.

The latest challenge faced by Credit Suisse is the erosion of its franchise due to its persistent problems. According to JPMorgan Chase & Co. analyst Kian Abouhossain, the most likely endgame for the bank is a sale and breakup, possibly marshalled by UBS Group AG. The bank's stock has few marginal supporters, and Credit Suisse needs to fill the information void by publishing details of the historic costs and revenue of the reorganized, continuing set of businesses.

To fight for survival, Credit Suisse has offered to buy back up to $3 billion worth of its own bonds. This is a bold play designed to have multiple payoffs as a selloff in a bank's shares and bonds and a jump in the cost of protecting its debt against default creates a nasty feedback loop that directly hurts its ability to operate. However, this move is not enough to address the bank's chronic problems.

Credit Suisse has plenty of capital, no looming losses from bad assets, and more than enough liquidity to meet withdrawals. It is faith, not fundamentals, that matters right now. The bank's leadership, including CEO Ulrich Koerner, can only stick to their strategic revamp and try to win back the faith of clients and staff. Koerner told employees to keep their minds on the facts and not the sentiment. He needs depositors to do the same.

With a single branch in India, Credit Suisse has a 1.5% share among foreign banks in India. Its share of banking assets is at 0.1%. About 70% of the bank's assets in India are in short-term government securities. "Banks in India have already downgraded Credit Suisse in their internal ratings, so fresh trading positions with them are now unlikely," said the chief government bond trader at a large private sector bank.

The proposed class-action complaint filed against Credit Suisse in the US alleges that the bank overstated its financial prospects to shareholders. In its 2021 annual report, Credit Suisse did not identify material weaknesses with its internal controls that have since come to light. Following the release of the bank's fourth-quarter report for 2022, the price of Credit Suisse American depositary shares fell 15.6%. The stock tumbled further on news in early March that the bank would delay the publication of its 2022 annual report.

In conclusion, Credit Suisse needs to take urgent action to address its persistent problems, including the erosion of its franchise, regulatory issues, and lawsuits. The bank should publish details of the historic costs and revenue of the reorganized, continuing set of businesses to fill the information void and win back the faith of clients and staff. While the offer to buy back up to $3 billion worth of its own bonds is a bold play, it is not enough to address the bank's chronic problems. The bank's leadership should stick to their strategic revamp and avoid a takeover.

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