This is it: Tidjane Thiam’s Big Plan. The Credit Suisse chief executive, three months into the job, has set out his strategy and is asking for CHF6 billion ($6.2 billion) of fresh equity to pay for it. Should shareholders give it to him?
Start with the capital. That equity issue will push its capital ratio from just over 10% to just over 12%, which is higher than many rivals. The idea is that the fundraising will sort out the issue once and for all. But regulatory capital demands are a moveable feast. The best that can be said is that it will quell concerns for now. Still, Mr Thiam is not fretting about the impact the extra capital will have on the bank’s return on equity (which came in at a paltry 7.1% in a very weak third quarter.) He has declined to set a new ROE target. Given how frequently banks miss such targets, that is a sound move.
So, anyone putting in money now will be getting a comfortably capitalised bank but an uncertain return on that capital. Much firmer are the operational targets for 2018 - a net CHF2 billion of cost cuts (on an annual cost base of CHF22 billion); a doubling of profits from Asia-Pacific; a 61% rise in international wealth management profits and 44% growth in domestic profits. There is no profit target for the investment bank though. Given that the business accounts for 55% of the group’s risk-weighted assets, it is a notable absence.
There is also a plan to partially float the Swiss part of the bank. The aim here is to provide an acquisition currency and make the value of the business clearer. But Credit Suisse already has an acquisition currency in the form of its own shares and investors are capable enough of doing their own sum-of-the-parts calculations. Unless Credit Suisse needs the capital that an IPO could generate, the move looks like a distraction.
Still, if Mr Thiam can deliver on his promises, there is money to be made for anyone who takes up the equity issue. The new Credit Suisse shares are available at CHF18 each, which is a one-third discount to book value. UBS shares trade at just under 1.4 times book value. Close that gap and there is an attractive profit. But bear this in mind: the sight of a new European bank chief executive raising capital and promising great things is not a novel one. The challenge for Mr Thiam is to make universal banking work - a task at which so many others have failed.
Copyright The Financial Times Limited 2015