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Credit Suisse CEO open to deals as bank mergers accelerate
[ZURICH] Credit Suisse chief executive officer Thomas Gottstein said the bank will consider potential acquisition opportunities as negative rates and over-banking in Europe drive lenders to deals.
While the Swiss firm is focused on organic growth, consolidation "is needed and will happen," Mr Gottstein said at Bloomberg's Future of Finance virtual event on Wednesday. He joined other banking heads across the continent in predicting an acceleration in domestic deals ahead of cross-border transactions.
Mr Gottstein has been simplifying the bank's complicated structure and partially rolling back initiatives taken under his predecessor Tidjane Thiam to boost growth. He's now signaling an openness to discuss potential takeovers after speculation in September that UBS might consider a deal to combine with its biggest rival.
European banks are trying to bulk up in their home markets before long-awaited cross-border consolidation takes hold. While domestic mergers are heating up in countries such as Spain and Italy, the lack of a common deposit plan and banking union makes deals between financial firms in different countries less attractive.
With revenue squeezed because of prolonged negative interest rates, there's pressure on the industry as a whole, Mr Gottstein said, adding that a surplus of banks in parts of Europe is also driving consolidation. Credit Suisse is open to opportunities in private banking especially, he said.
The bank's moves to boost growth without takeovers includes hiring more relationship managers in China - a key growth market - and which will require significant investment, Mr Gottstein said.
Volatility will be "the name of the game" for the next few months on concerns around how quickly a virus vaccine will be ready, as well as the knock-on effect on the economy and corporate health, Mr Gottstein said. Income from mandates to manage the wealth of rich clients - known as recurring revenues - will grow slower than revenues from client transactions, he said. Trading was a key bright spot for US and European banks in the third quarter, though less so for Credit Suisse.
The bank posted worse-than-expected results in the period, with net income dragged lower by the key international wealth management and Swiss units even as rivals UBS and Julius Baer posted better-than-expected profit. Wealth management clients have remained reluctant to take risks, while the pandemic has made it harder to win new clients with in-person meetings. That's left many banks more reliant on trading in recent quarters.
Even after the Swiss bank and rivals dealt well with working from home, the industry should brace for a "tense" 2021 because of the ongoing impact of the pandemic, Mr Gottstein said, adding that a second lockdown in Europe and Switzerland will have implications for the broader economy, corporate clients and wealth management.
"There's no question 2021 we will see further fallout," he said. "And we will see some more corporates that will need liquidity and lending support."
Mr Gottstein's comments on consolidation - and how it probably won't happen at a significant cross-border level for now - were echoed by Christiana Riley, head of Deutsche Bank's Americas business. Speaking at the same Bloomberg event, she said that the regulatory environment in Europe continues to stymie larger deals. The most often cited impediments to cross-border deals are a lack of a common deposit plan and banking union in Europe.
"Are we at that point yet where we're able to overcome some of those as I say very valid regulatory and political considerations? It doesn't feel like it yet," Ms Riley said. "There's probably a desire to see some more structural protection in place before we would be able to consider some of those bigger moves." Credit Suisse is also turning its focus to growing the loan book as well as deals with its richest and most entrepreneurial clients. Mr Gottstein last month tapped a former top rainmaker at Bank of America as it vies with UBS for ways to get more business out of the richest customers.
The Swiss bank hired Christian Meissner to co-run a newly created group connecting entrepreneurs who are clients of its international wealth management unit with the services offered by the investment bank. The bank has also created a new group that pulls together top investment bankers from different sectors to focus on its biggest deals.
Other bankers across the region are jostling to position themselves ahead of an expected wave of consolidation in fragmented markets. Deutsche Bank chief executive officer Christian Sewing said at a conference in September that the pandemic could accelerate that process. Italy's Intesa Sanpaolo is taking over domestic rival Unione di Banche Italiane to be in a stronger position for cross-border deals, while in Spain CaixaBank and Bankia are merging.