Credit Suisse to raise capital amid shift to wealth business

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(Bloomberg) -- Credit Suisse Group AG will raise about US$6.3 billion of capital as part of a broad reorganisation that will increase the bank’s focus on Switzerland and wealth management in Asia as it scales back the securities unit. The shares dropped.

The bank, reporting earnings that missed analysts’ estimates, said it plans an initial public offering of its Swiss banking unit by the end of 2017 to take advantage of consolidation in the country. Credit Suisse also plans to save 3.5 billion francs in costs by the end of 2018 on a gross basis, Zurich-based Credit Suisse said Wednesday.

Chief Executive Officer Tidjane Thiam, brought in to rebuild investor confidence, is seeking to boost returns that are under pressure from tougher capital requirements and record- low interest rates by growing in Asia. Under Thiam’s predecessor, Brady Dougan, the bank reduced emphasis on investment banking and focused more on wealth management. For many investors, that wasn’t enough. The stock posted the worst performance among 10 global peers over the past five years.

“We are rebooting the company, we are solving our capital issues,” Thiam said in an interview with Bloomberg Television. “One of our objectives coming in was to take capital off the table to raise enough capital so that this would not be again a topic of conversation at quarterly results.”

The shares dropped as much as 4.5 percent as of 9:08 a.m. in Zurich.

Management Overhaul

The bank said it will sell 1.35 billion francs of stock to select shareholders and offer 4.7 billion francs to existing investors in a rights offer.

The bank said it will restructure to create three regionally-focused divisions and split the securities unit into a markets business and an investment banking operation. To reflect the new organization, Credit Suisse named Helman Sitohang and Iqbal Khan among six new board members as Gael de Boissard, Hans-Ulrich Meister and Robert Shafir step down.

“We see the announcements as positive,” analysts at Goldman Sachs Group Inc. led by Jernej Omahen said in a note. “The IPO of Swiss bank comes as a surprise and has three positive effects,” they said, on valuation, capital and reduced dilution from future consolidation in the Swiss market.

Credit Suisse said it will reduce the capital it allocates to the securities unit by scaling back the macro and prime services businesses. It will also “right-size” in London, the bank said.

“Credit Suisse enters its new strategy with a bad earnings miss,” Dirk Becker, an analyst at Kepler Cheuvreux said in a note. “Thiam was brought into the bank as CEO to downsize the investment bank, grow in Asia and better control costs. He is delivering on all these expectations with the strategy announcement, but there is no tangible breakthrough on top of it.”

Net income decreased to 779 million Swiss francs from 1.03 billion francs a year earlier. The average estimate of seven analysts in a Bloomberg survey was for 858 million francs. Net revenue from fixed-income sales and trading plunged 53 percent to 674 million francs as “extreme dislocations” in credit markets resulted in lower client activity, the bank said.

Private banking and wealth management posted 647 million francs in pretax profit, down 31 percent, Credit Suisse said. That missed an average estimate of 896 million francs.

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