Stock - Credit Suisse
The firm will also start headcount reductions of 2,700 positions in the fourth quarter and said that its workforce is set to decline by about 9,000 to 43,000 by 2025 Image Credit: Bloomberg

Credit Suisse Group AG took the most dramatic steps yet to repair the bank, unveiling a restructuring that will see a multi-billion dollar capital raise, thousands of job cuts and carve out of the investment bank.

The firm plans to raise 4 billion francs ($4.1 billion) through a rights issue and selling shares to investors including the Saudi National Bank, it said Thursday. It’s effectively breaking up the investment bank, separating the advisory and capital markets business and selling a majority of its SPG business to Apollo Global Management Inc. and Pacific Investment Management Co.

The overhaul is an urgent attempt to restore credibility at Credit Suisse after a succession of big losses and management chaos shattered its status as one of Europe’s most prestigious lenders. Chief Executive Officer Ulrich Koerner and Chairman Axel Lehmann, brought in as crisis managers, now face the task of executing the biggest overhaul in the bank’s recent history while seeking to protect the wealth management unit that will determine its future.

“The new Credit Suisse will definitely be profitable from 2024 onwards,” Koerner said in an interview with Bloomberg Television’s Francine Lacqua. “We do not want to over promise and under deliver, we want to do it the other way around.” per centThe shares fell as much as 16% in Zurich as investors digested combined charges related to the restructuring of about $6.6 billion and the dilution effect of the share sales. The capital raise may install Saudi National Bank, backed by the nation’s key sovereign wealth fund, as one of Credit Suisse’s top shareholders, with a stake of as much as 9.9 per cent.

Bank executives had wanted to avoid a capital increase given the shares were trading near record lows, but had seen outflows from wealth management clients and ultimately decided to boost capital to help shore up its finances. The bank posted a third-quarter net loss of 4.03 billion francs and said it expected a fourth-quarter loss as well.

“Credit Suisse seems to be wanting to put a line under concerns by wealth management clients,” JPMorgan Chase & Co. analyst Kian Abouhossein wrote in a note to clients Thursday. “Material questions remain to assess well the outcome of the IB restructuring, which is relatively more complicated to what we witnessed in the case of UBS and Deutsche Bank.”

The firm will also start headcount reductions of 2,700 positions in the fourth quarter and said that its workforce is set to decline by about 9,000 to 43,000 by 2025. Its also seeking to reduce the cost base by 15 per cent, or 2.5 billion francs, by that date.

Some of the biggest changes will come at the investment bank, including the departure of its head, Christian Meissner and the revival of the First Boston branding. The separate business will include the bank’s historically strong advisory and leveraged finance unit and be led by Michael Klein, a veteran ex-Citigroup dealmaker known for his ties with the Middle East.

The bank has already lined up an outside investor willing to make a $500 million injection into the business, according to a person with direct knowledge of the matter. The new firm will be a partnership model, with key employees having a level of ownership.

The bank’s overarching aim at the investment bank is to reduce risk weighted assets. It’s placing European lending and capital markets activities into the “capital release unit” it’s created to host assets it plans to wind down.

The restructuring comes as third-quarter results shone a light on the challenges ahead. The investment bank continued to struggle and wealthy clients fled. The bank posted a more than $4 billion quarterly loss, including a 3.7 billion-franc impairment of deferred tax assets related to the revamp. The restructuring will cost an additional 2.9 billion francs through 2024.

To help pay for the overhaul, Credit Suisse said it will only pay a “nominal” dividend over the next couple of years, before reverting to “meaningful” payments from 2025 onwards.

Koerner’s overhaul is the culmination of a three-month strategic review, prompted by a larger-than-expected 1.59 billion-franc loss in the second quarter that spelled the end of the short-lived tenure of CEO Thomas Gottstein. The former investment banker - tapped in 2020 after Tidjane Thiam left because of a spying scandal - presided over financial and reputational hits from the collapses of Archegos Capital Management and Greensill Capital, while overseeing a whirlwind of changes across the management board.

Less than a year ago, Antonio Horta-Osorio, who had successfully turned around Britain’s Lloyds Banking Group Plc, made his own attempt to try and turn around the bank’s fortunes. The then-chairman decided to exit the hedge fund business at the center of the Archegos scandal and shift about $3 billion of capital from the investment bank to the private bank. That stopped short of the more dramatic changes that some analysts and investors had imagined.