Credit Suisse overhaul a risky play: Fitch

The planned restructuring of Credit Suisse — which involves pulling back from investment banking and shifting more toward wealth management — will delay the bank’s return to profitability and carries significant execution risk, says Fitch Ratings.

On Oct. 27, Credit Suisse unveiled a plan to overhaul its business by establishing a standalone investment banking unit that revives the First Boston brand, aiming to spin it out by 2025 and reduce its  securitization business. At the same time, it plans to increase its capital allocation to wealth management, asset management, and its Swiss bank.

The rating agency said that plan is expected to save the bank 2.5 billion Swiss francs by 2025, but will also require SFr 2.9 billion in restructuring charges.

“The restructuring should boost capital by reducing risk-weighted assets and leverage assets, but entails substantial execution risks given the scale of the transformation over a three-year period in a deteriorating operating environment,” Fitch said.

Additionally, the restructuring is expected to challenge profits, given the size of the restructuring charges, and the fact that “scaling back the investment bank while asset valuations are depressed could generate significant losses.”

Fitch downgraded Credit Suisse’s ratings in August and reinstated its negative outlook, “reflecting repeated quarterly losses and an unstable business model.”

While the restructuring plan itself doesn’t impact the bank’s credit ratings Fitch said those ratings “could face added pressure if the restructuring falters…”

“If we see compelling evidence that Credit Suisse is on track to implement its plans successfully, with business model stabilization and improved earnings generation, we could revise the outlook to stable,” it said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.