Credit Suisse (CS) wants to get out of crisis mode with a radical restructuring and a billion-dollar capital increase.

The scandal-plagued major Swiss bank splits up the recently high-deficit investment banking and drives it back significantly.

From now on, the focus will be much more on asset management and on the universal banking business in the Swiss home market.

By 2025, the bank wants to reduce costs by CHF 2.5 billion or 15 percent to CHF 14.5 billion.

At the same time, the number of employees is to be reduced by 9,000 to 43,000.

In the short term, 2,700 jobs will be cut, around 2,000 of them in Switzerland.

The bank announced this on Thursday.

John Knight

Correspondent for politics and economy in Switzerland.

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The conversion is expensive for the bank.

The Executive Board, led by Ulrich Körner, estimates the associated restructuring costs and write-downs to be incurred by the end of 2024 at CHF 2.9 billion.

This is to be financed through the sale of assets and participations, but above all through a capital increase with a total volume of 4 billion francs.

The market had been speculating about the latter for months.

This put pressure on the CS share price, because the issue of new shares severely dilutes the profit shares of the existing shareholders.

There was also the question of who would actually invest in the bank given its increasingly desolate situation.

Arab investors on board

CS has now provided an answer to this: The Saudi National Bank (SNB Group) has undertaken to subscribe to new shares worth up to CHF 1.5 billion and thus to a capital stake of up to 9.9 percent.

Fully controlled by the Saudi government, SNB Group is Saudi Arabia's largest bank.

With the Saudi Olayan Group and Qatar Holding, which each hold around 5 percent of the capital, Credit Suisse already has two major Arab shareholders on board.

The need for a capital increase also results from the fact that CS closed the third quarter of 2022 with a loss of an incredible 4 billion francs.

After nine months, there is a deficit of CHF 5.9 billion.

The Management Board attributes the loss in the third quarter, which was completely unexpected at this level, primarily to a value adjustment of deferred tax assets in connection with the restructuring of the group of 3.7 billion Swiss francs.

But things didn't go well operationally either.

Before taxes, the bank made a loss of CHF 342 million after a profit of CHF 1 billion in the same period last year.

The costly settlement of older legal cases in France and America also played a role.

The series of headline-grabbing bankruptcies, bad luck and breakdowns deterred many customers.

In asset management, net outflows of client funds amounted to CHF 12.9 billion in the third quarter.

The (profitable) local rival UBS, on the other hand, reported inflows in the tens of billions on Tuesday.

As Credit Suisse writes, the bloodletting continued in the first half of October: Due to "negative reporting in the media and social networks, which was based on incorrect rumours", there were significant outflows of deposits and assets under management during this time.

In the meantime, however, the situation has calmed down again, the new CFO Dixit Joshi asserted in a conference call with journalists.

The announced capital increase promises security and stability.

Joshi calculated that the CET1 capital ratio would rise to around 14 percent as a result of the capital increase, for which shareholder approval is still required.

By the end of September, this figure had fallen by almost a full percentage point to 12.6 percent.

Without an injection of capital, it would continue to fall, because the board of directors also expects a loss in the fourth quarter.

During this time, restructuring costs and value adjustments on software and real estate of CHF 250 million are to be expected.

Losses will also result from the exit from transactions that CS no longer counts as part of its core business and which are now to be bundled in a liquidation unit.

Credit Suisse is splitting its investment bank, which also posted hefty losses in the third quarter, into three parts.

M&A and capital markets transaction advisory business will be merged into a separate entity under the revived CS First Boston brand.

External investors are to participate in this later.

CS intends to sell the majority of its securitization business to Apollo Global Management and the Allianz subsidiary Pimco.

The bank does not provide any information on the price.

Credit Suisse will continue trading in equities, currencies and bonds.

However, this business should play a more supporting role in asset management.

The conversion plans were not well received on the stock exchange.

The CS share price fell by 12 percent to CHF 4.20 on Thursday.

According to the analysts at Bank Vontobel, the strategic measures are largely in line with expectations, even if some market participants would have expected more significant cuts at the investment bank.

CS is now embarking on a long and arduous journey to regain the credibility and trust of the various stakeholders.

At the same time, management should no longer make any major mistakes.