Credit Suisse Needs the Deal of the Decade


Credit Suisse’s


CS -10.51%

latest restructuring plan will require all the deal-making prowess it can muster.

Shares in the Swiss bank have tumbled to record lows this week in reaction to a drip feed of leaks about how its new board might overhaul the business. On Friday, a Reuters report that it was sounding out investors about raising more capital sent the stock down 10% to trade at around 22% of book value.

Now is clearly not the time to be selling more shares. To avoid that, the bank’s deal makers will need to be creative in how they overhaul their investment bank. 

We’ve been here before. Credit Suisse has tested investor patience over the years with a string of strategic overhauls that haven’t really worked. After the latest series of scandals, profit warnings and disappointing returns, however, the recently appointed board may have hit on a winner: paring back to a “capital-light” investment bank focused on supporting growth in its wealth management and Swiss-banking businesses. It seems to be working well for crosstown rival

UBS.

Both Credit Suisse’s current chairman and chief executive officer worked at UBS when it did a similar restructuring. They are due to detail their plans alongside the company’s third-quarter results next month.

There are many ways in which Credit Suisse can slim down its investment bank: breaking it into pieces, selling businesses or assets, winding down some units or even attracting third-party capital. An important part of the overhaul will be what Credit Suisse does with its securitized products business. A legacy of its 1990 acquisition of First Boston, it is a strong, profitable business that simply isn’t a great strategic fit with the latest plan. 

The structure of the changes will have big consequences. Analyst estimates on what is needed range widely: from Credit Suisse being able to restructure without raising new capital all the way up to its needing as much as $6 billion to finance the restructuring with sufficient buffers.

With the S&P 500 down about 21% year to date, it is also a tough time to be doing deals. Uncertainty is high, as is volatility. Markets are twitchy and a recession is looming. Rising rates offer lenders some solace, but they also bring the risk of a harsh recession that could increase loan losses and push customers to seek safety in cash.

Long-suffering Credit Suisse investors now hold shares worth less than a quarter of their book value and are understandably eager to avoid dilution at that rate. Whether that is possible depends in part on the bank’s deal-makers. Now is their chance to prove their skills.

Write to Rochelle Toplensky at rochelle.toplensky@wsj.com

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