Credit Suisse Group plans to cut as many as 6,500 jobs this year and is keeping its options open as it prepares for a partial sale of its Swiss unit to strengthen capital.
The share sale “is a very good option, it’s on the table,” Chief Executive Officer Tidjane Thiam said in a Bloomberg Television interview.
“But of course, as you would expect, it’s what we’re paid for, we look at other options as well, continuously.”
The Swiss bank is stepping up cost cuts after a charge to settle a US investigation into the role of its mortgage securities business in the 2008 financial crisis led to a fourth-quarter loss of 2.35bn francs ($2.34bn). While the $5.3bn settlement dented the bank’s capital buffers, the damage was less severe than some analysts expected.
Credit Suisse doesn’t need the initial public offering, according to Peter Casanova, a Zurich-based analyst at Kepler Cheuvreux who rates the stock buy. Thiam said the bank “will decide in the best interest of shareholders and that’s a hint he may not do it,” Casanova said. “It’s not in the interest of shareholders to sell the bank’s crown jewel.”
Credit Suisse reported a common equity Tier 1 ratio, a measure of financial strength, of 11.6% at the end of December, down from 12% at the end of September. The bank is targeting 13% by the end of 2018.
Cost-cutting is ahead of schedule and an improved market sentiment for banks that boosted trading in the fourth quarter has continued this year, Thiam said in the interview. The bank eliminated 7,250 jobs last year, surpassing its target of 6,000 cuts for 2016, Chief Financial Officer David Mathers told reporters. The bank employs about 47,000.
Thiam had said he was accelerating cost cuts when he updated investors on his turnaround plan in December. But he declined to give a target for job cuts at the time, except to say that the downsizing of the global markets unit, where most of last year’s cuts occurred, was largely completed.
The CEO has long described the plan to raise 2bn francs to 4bn francs through a sale of 20% to 30% of the Swiss business as a cornerstone of his strategy to reshape the company to focus on wealth management. On a conference call with analysts Tuesday, he repeatedly referred to it as merely a “backstop.”
“It’s not convincing that the IPO would have achieved any great benefit to the capital position of the bank,” said Ray Soudah, founder of Millenium Associates, a corporate finance advisory firm in Zurich. “They’ve now realised this and the IPO is unlikely to happen. There’s no merit to doing it, especially after the recent recovery in the share price.”
The shortfall in fourth-quarter profit reflected a charge to settle with the US Justice Department. Thiam said the bank expects to pay only $2.55bn of the $5.3bn settlement. The agreement calls for $2.8bn in consumer relief for which the bank has set aside about $70mn, he told analysts.
The settlement is a “game-changer” that “leaves us in a more comfortable position to look today at our capital planning,” Thiam said in the Bloomberg interview.
Credit Suisse’s “capital ratio is much better than expected by 50 basis points, and the January outlook statement shall be seen as a strong start,” Kian Abouhossein, an analyst with JPMorgan, said in a note. “What we think Credit Suisse needs to illustrate now is that it can generate ongoing profit and book value growth to deserve a re-rating.”
Like other big European lenders, Credit Suisse is reining in spending under pressure from low interest rates and rules requiring banks to hold more reserves. The bank is targeting an operating cost base of less than 17bn Swiss francs by 2018, down from an earlier goal of below 18bn francs.
Restructuring costs amounted to 49mn francs, as Credit Suisse cut about 1,800 jobs during the quarter. That brought the total for the year to 540mn francs, below the bank’s guidance of about 600mn. The bank said in December the cost would remain about the same this year.
The Swiss universal bank delivered the largest contribution to the bank’s pretax profit in the fourth quarter, with a pretax profit of 382mn francs.
“The preparation for the IPO continues, however Credit Suisse stated that it will continue to assess the evolving regulatory environment to identify the best options for shareholders,” Jernej Omahen, an analyst at Goldman Sachs with a buy rating on the bank, said in a note to clients. “It is unclear to us what the possible alternatives to the IPO could be, but the market will no doubt focus on this in the immediate future.”
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