CREDIT Suisse Group faces a capital gap of at least 4 billion Swiss francs (US$4.1 billion) to improve its financial strength, fund its restructuring and support growth, according to Deutsche Bank.
The size of any equity raise would be determined by the Swiss bank's ability to quickly sell its securitised-products trading business, Deutsche Bank analysts wrote in a note to clients on Tuesday. While Credit Suisse exceeds its regulatory minimum requirements, the bank is below its future targets as well as the metrics of larger rival UBS Group, they wrote.
Credit Suisse is undertaking a deep overhaul after a string of scandals and losses called into question the wisdom of trying to compete as a global investment bank. The bank's new chief executive officer Ulrich Koerner is looking at how to reshape that division, including by attracting third-party capital for securitised products.
"Capital generation as well as running down businesses take time and are likely more back-end loaded whereas strengthening capital and funding the restructuring require capital up-front," Deutsche Bank analysts Benjamin Goy and Sharath Kumar Ramanathan wrote. "The sale of securitised products has some execution risks, in our view."
If sold at book value, Credit Suisse would free up about 3 billion Swiss francs of capital by fully de-consolidating that business, according to Deutsche Bank.
Selling less than 100 per cent of securitised products would "significantly reduce the capital benefit" as the remaining minority stake might still bind financial resources, the analysts wrote.
Other options include the sale of certain businesses or stakes held by Credit Suisse's asset management unit, although a sale of the unit as a whole is unlikely, according to Deutsche Bank.
The Swiss lender could also shrink the size of its investment bank, particularly in fixed income trading as well as high-yield debt capital markets and leveraged loans, the analysts wrote.
The Deutsche Bank analysts also said that while the focus has previously been largely on Credit Suisse's investment bank and wealth management divisions, "the steady Swiss business was typically the largest driver of profits." The analysts said they expect the lender to retain complete ownership of the unit and support it with "further front-to-back digitalisation." BLOOMBERG