Fearing predators, Credit Suisse seeks new look or even merger: Sources

Credit Suisse has had to review its business after losing more than $6.7 billion.
Credit Suisse has had to review its business after losing more than $6.7 billion.PHOTO: REUTERS

ZURICH (REUTERS) - Credit Suisse's top management are under pressure to come up with an overhaul plan for the scandal-hit Swiss bank that could include a potential merger with rival UBS, three people familiar with its thinking told Reuters.

The bank's executives fear the flagship Swiss lender, left vulnerable by scandals, could be challenged by investors demanding its break-up, or that its shrinking stock-market value makes it a target for a foreign hostile takeover, those people said.

New chairman Antonio Horta-Osorio announced a strategic review in late April, telling investors he would take time in reaching hard decisions that lay ahead.

The bank's senior management are due to meet next week, one source said, while another person with knowledge of the matter said top executives wanted to examine restructuring proposals in early July.

The Swiss bank has had to review its business after losing more than US$5 billion (S$6.7 billion) in the rush to unwind trades by family office Archegos. It faces a barrage of legal action for helping clients invest US$10 billion in bonds issued by collapsed supply chain finance firm Greensill Capital.

The bank's shares have dropped by more than a quarter since early March, when its problems with Greensill were exposed.

"Credit Suisse needs a merger deal right away," a person with knowledge of the bank's thinking told Reuters. "There is growing concern in Zurich that activist investors will go after them if they stand still."

Some executives have debated steps such as spinning off its local Swiss bank to prepare the rest of the business for a merger, pruning back investment banking or selling its asset management business, two of the people said.

A third said selling the US investment bank was also an option.

Management discussions on any restructuring are preliminary and while they are in full swing, no decisions have yet been taken, the people said.

Credit Suisse and UBS declined to comment.

The bank's management needs a new-look Credit Suisse, as its standing with customers and in Switzerland hits a low ebb.

In April, Swiss supervisor Finma said it had opened enforcement proceedings against Credit Suisse following Archegos and that it would investigate risk management shortcomings.

Swiss regulators are exasperated with what they see as the bank's freewheeling culture, said one person with direct knowledge of the matter.

Credit Suisse's shrunken market valuation makes it worth a fraction of some of the big Wall Street banks, which have also been touted as potential suitors.

But any US takeover would not be well received in Switzerland. Relations between Swiss banks and Washington were damaged when the United States pressured them into giving up their strict secrecy code more than a decade ago.

A merger with UBS would more palatable, the people said.

"The Swiss establishment is aware that without a domestic merger Credit Suisse will disappear in foreign hands," one of the sources said.

But the combination of Credit Suisse-UBS would have a dominant position in the Swiss market, a concern for regulators who could also demand that a combined group bolster its capital.

Credit Suisse could split out its Swiss bank to address competition concerns, one source said.

Credit Suisse-UBS would have workforce of more than 110,000 and a market value of more than US$85 billion.

Earlier this year, when asked about a tie-up with Credit Suisse, UBS chief executive officer Ralph Hamers threw cold water on the idea, saying he preferred "organic" growth.

Any M&A deal for Credit Suisse would mark the end of a national icon, founded to finance the country's pan-Alpine railways and central to Switzerland's transformation from a farming nation to financial powerhouse.