Credit Suisse Group AG’s Thomas Gottstein has had to contend with losses on loans to rich clients, reports on questionable deals the bank arranged for others, and a lacklustre trading performance.
Now the asset management unit, traditionally a stable business, is turning into a major headache for the 56-year-old, who took over as chief executive officer from Tidjane Thiam in February.
Credit Suisse said on Tuesday it expects to book a $450mn impairment on its stake in York Capital Management, as the US investment firm founded by Jamie Dinan winds down most of its hedge-fund strategies in the wake of this year’s market upheaval. The Swiss bank agreed to take a 30% stake in York in 2010, offering to pay at least $425mn at the time to give clients access to alternative investments.
The surprise write-down caps a tough year for Gottstein, who is simplifying the bank’s organisation as the volatility caused by the coronavirus pandemic ripples through its various businesses. The asset management unit in particular has been hit hard recently, with Credit Suisse closing down funds and laying off employees at its alternatives business, and overhauling investment guidelines for others. Gottstein said in September that the bank is planning a strategic review of asset management over the next 12 months, though for now, he has ruled out a sale or merger.
York Capital, started in 1991, is retreating from most of its hedge fund business and retooling to focus on long-term products after “a year marked by tremendous upheaval and disruption,” according to a letter to clients seen by Bloomberg News. Dinan has seen his firm’s assets tumble from a $26bn peak in 2015.
The charge will reduce a key measure of Credit Suisse’s capital strength, the so-called common equity Tier 1 ratio, by 7 basis points this quarter, but the bank said it won’t affect plans to return capital to shareholders.
Shares of Credit Suisse rose 2% in Zurich as European stocks rallied. They have lost about 12% this year, compared with a small gain for rival UBS Group AG.
Even before the York Capital decision, Credit Suisse had been shuttering a quantitative strategy and took a 24mn Swiss franc ($26mn) charge on seed capital in a US real estate vehicle in the third quarter, Chief Financial Officer David Mathers said in a recent interview. Aventicum Capital Management, a joint venture with the Qatar Investment Authority, is closing two groups of funds and returning capital to investors, Credit Suisse said last month.
The bank previously indicated it expects more restructuring costs and potential mark-downs as it continues to review the portfolio of alternative investments. York Capital was Credit Suisse’s biggest hedge-fund equity investment and the only one listed in the 2019 annual report, though the bank has seed investments in a number of other funds. York represented about 1% of the 438bn francs overseen by the bank’s asset management unit as of the end of 2019.
Credit Suisse bought the stake at a time when many Wall Street firms were seeking ways to tap into hedge funds’ fee income, because new regulations in the wake of the financial crisis had made it harder for banks to wager with their own money. But such minority stakes weren’t without risks, as many investment firms struggled to perform or even shuttered, rendering the stakes worthless. Swiss rival Julius Baer Group Ltd is revamping the ownership structure of its Italian money manager Kairos after outflows and uncertain prospects triggered a second writedown in as many years. GAM Holding AG, which paid more than $200mn for Cantab Capital Partners in 2016, has seen the value of that stake dwindle as assets slumped during the pandemic.
Credit Suisse’s asset management operation is split between a traditional business with long equity and fixed-income strategies sold largely to its private banking clients, and alternative strategies in the US consisting of wholly owned hedge funds, a large credit business and a number of smaller funds and external investments.
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