Credit Suisse (CSGN.S) may “temper” some of its key growth initiatives in wealth management as it focuses efforts on a risk turnaround and bolstering technology, executives said in their first update to investors since a new strategy was set out.
A series of losses and scandals have hammered Credit Suisse’s share price since March 2021, prompting ousters and a strategic overhaul to rein in its investment bank and focus further on managing the fortunes of the world’s rich.
Those plans were laid out in November – before inflation, rising interest rates, commodity shocks and Russia’s war in Ukraine unleashed turmoil on financial markets and caused many investors to retreat from borrowing and perceived risks.
Under a largely new team of executives, Credit Suisse said it now plans to extend the savings it hopes to achieve through technology while maintaining plans to grow its business with wealthy and ultra-wealthy clients, albeit at a potentially slower rate.
“The long-term strategy doesn’t change. We set a strategy to build a long-term successful wealth management business,” Wealth Management head Francesco De Ferrari told investors and analysts during an investor presentation.
“Clearly, the rate at which you see some of the initiatives being deployed has to be tempered given the market environment.”
Switzerland’s second-largest lender in November outlined ambitions to redeploy some 3 billion Swiss francs ($3.14 billion) in capital towards its wealth management division by 2024.
Chief Executive Thomas Gottstein said significant moves by clients to reduce their borrowings over recent quarters could now impact those plans.
“We had a significant amount of deleveraging going on (in the last quarters), probably more so than we had expected in November,” Gottstein said.
“In principle, our plan continues to be to grow our lending book in wealth management and directionally go towards the 3 billion. But given what happened in terms of the last couple of quarters, it’s clearly a slightly different basis from where to go.”
BANKING ON TECHNOLOGY
Credit Suisse has faced a turbulent period since twin hits – a $5.5 billion loss on the default of U.S. family office Archegos Capital Management and the shuttering of $10 billion of its supply chain finance funds – beset the bank in March 2021.
Further legal cases, lawsuits and departures have since kept it in the headlines.
On Monday, Switzerland’s Federal Criminal Court convicted Credit Suisse of failing to prevent money-laundering, in the country’s first criminal trial of one of its major banks.
Under Swiss law, a company can be held liable for inadequate organisation or failing to take all reasonable measures to prevent a crime from happening. The bank plans to appeal the ruling.
De Ferrari noted on Tuesday that recent events had clearly had a reputational effect on the bank, which translated into a “partial impact” on business momentum.
Wealthy entrepreneurial clients had expressed support for the bank, the executive noted, but enlisting new clients to its roster of ultra-rich clientele had proven more “challenging”.
Credit Suisse in June warned of a likely loss for the second quarter, the third quarter in a row for which Switzerland’s second-largest bank has issued a profit warning.
The bank at the time said it aimed to bring cost savings forwards, speeding up measures targeting 1.0 billion-1.5 billion Swiss francs in structural cost savings annually by 2024.
It said on Tuesday it sees scope for a technological overhaul to generate some 800 million francs in cost savings in the medium term, including 200 million francs in each of the years 2022 and 2023.
Consolidation of its data centres and other simplification measures are expected to add an a further 400 million francs in cost savings beyond that, new Chief Technology & Operations Officer Joanne Hannaford, who joined the bank from Goldman Sachs (GS.N) in January, said.
The bank said it additionally saw opportunities for digitalisation to scale up its business advising high net worth clients.
Higher interest rates should also provide a boost to its flagship division, it said, predicting increased rates could provide above 800 million Swiss francs in additional net interest income in 2024 versus 2021.
It confirmed its goal for wealth management to achieve a return on regulatory capital above 18% in 2024.
($1 = 0.9563 Swiss francs)