Mr. Thiam, who joined Credit Suisse from U.K. insurer Prudential PUK 2.14 % PLC in July, is expected to make broad changes to the Swiss group’s investment bank and private banking arm in a strategy update Oct. 21. A person familiar with the matter said many of the changes will echo those already made by UBS, which is widely considered to be in better shape than its crosstown rival, having shed large parts of its investment bank and refocused on its private banking business.
On Mr. Thiam’s likely strategy plan: cost cuts, a sharpened investment bank focused more on equities and less on credit and currencies, and the possible disposal of Credit Suisse’s subscale U.S. private bank, analysts predict.
But Credit Suisse will have to make careful cuts to its activities to avoid losing needed revenue, analysts warned, and will likely need to underpin its plans with new capital of up to around 7 billion Swiss francs ($ 7.36 billion) to meet stiffer Swiss capital requirements. A spokesman for Credit Suisse declined to comment.
“Alongside the capital increase we expect to see further balance sheet cuts,” Citigroup C -0.53 % analyst Andrew Coombs said, predicting the bank would raise at least 4 billion francs and reduce its structured products, credit and emerging markets businesses. “We expect greater investment in the (wealth management) business, particularly in growth markets such as Asia,” he said.
That formula of scaling back investment banking and focusing on wealth management helped UBS return to health after a rescue by the Swiss central bank in the financial crisis. Late in 2012, UBS took an ax to much of its fixed income, currencies and commodities trading and started hiving off large chunks of assets into a noncore portfolio. The measures helped its shares rise 3% in the past two years, while the stock price of Credit Suisse and other troubled European peers posted double-digit declines.
- Six Credit Suisse Financial Advisers Leave Ahead of Overhaul (10/8/15)
- Standard Chartered, Credit Suisse Face Equity-Raising Dilemma (9/25/15)
- MoneyBeat: Investment Banks: Smaller, Smaller, Smaller (9/8/15)
- New Credit Suisse Chief Tidjane Thiam Hits the Right Notes (7/23/15)
- Credit Suisse Swings to Profit (7/23/15)
Meanwhile, Credit Suisse avoided a bailout in the crisis but has struggled to find the right size and shape for its investment bank under new capital rules. As other global banks began mirroring UBS’s restructuring to adapt to changing conditions, former CEO Brady Dougan made only limited changes to the unit. In a parting speech to investors in April, he said the division was a valuable asset and shouldn’t be thrown overboard.
Credit Suisse reported that its investment bank accounted for 1.83 billion francs in pretax profit from continuing operations last year, compared with 2.1 billion francs for private banking and wealth management.
“It’s more of a Catch-22 position than at UBS,” said Nomura analyst Jon Peace. While Credit Suisse may want to cut costs and the risk exposure tied to its investment bank, it could lose a significant amount of income in the process, Mr. Peace said.
As it stands now, Credit Suisse is in a weaker capital position than its rival. The bank had a key capital ratio of 10.3% as of the second quarter, compared with 14.4% for UBS. Swiss regulators are expected to detail plans for new capital rules later this year.
To help shore up its balance sheet, Deutsche Bank DB 0.99 % analysts said they expect Credit Suisse to modestly reduce capital in the investment bank, particularly in fixed-income, currencies and commodities, where “more volatile markets create challenges.”
“We think new cost saving plans will be needed, but cutting costs without losing revenues at this point will be tough,” the analysts said.
Finding that elusive balance will be Mr. Thiam’s first big test since joining Credit Suisse as a banking outsider. Upon joining Credit Suisse in July, Mr. Thiam cautioned investors not to expect a quick fix, but the bank’s share price rose on hopes that he could replicate some of the success he had in refocusing Prudential’s strategy over his six years as CEO.
Credit Suisse is one of several banks in Europe with frustrated shareholders and a new CEO. Deutsche Bank CEO John Cryan is also planning moves to cut costs, boost profitability and help the bank recover from a series of regulatory missteps. At Barclays BCS 0.78 % PLC, former J.P. Morgan Chase JPM 0.87 % & Co. executive Jes Staley is in the process of being hired as CEO to carry out a radical overhaul that is already under way.