For Credit Suisse, restructuring costs are estimated at $4 billion or more by analysts. Paying for that with a stock sale would be horribly dilutive for existing investors: the stock is trading at a discount of more than 70% to its book value. Axel Lehmann, chairman, and Ulrich Koerner, managing director, are desperate to avoid this.
Instead, they are eyeing a garage sale of available assets, according to reports, from a posh hotel in Zurich to a stake in renowned consulting firm First Boston. Some of these sales wouldn’t be easy, but it’s clearly a better way to raise funds.
The value of these items, collated from news reports, analyst estimates and my own calculations, amounts to more than $5.75 billion in proceeds or paid-in capital on Credit Suisse’s balance sheet. If he can make even half of that, he’d be well on his way to paying for his revamp.
The biggest chunk comes from Credit Suisse’s Securitized Products Group, the profitable unit that creates and trades bonds made up of mortgages and buyout loans. The bank said it would seek investors to invest in this unit while continuing to manage it. I was skeptical this made sense, and JPMorgan Chase & Co. analyst Kian Abouhossein agreed in a recent note, saying an outright sell would be best. This would free up about $2.8 billion in capital, according to Abouhossein. Pimco and Apollo Global Management are among several potentially interested bidders, according to Bloomberg News.
The second-largest company is Credit Suisse Asset Management, which Bloomberg Intelligence values at $2.5 billion to $3 billion. This should be a core business for the Swiss bank, as it fits into wealth management and private banking, the primary focus of Credit Suisse. It should therefore not sell everything, but it could offload a minority stake, say 25%, as Deutsche Bank did successfully with DWS Asset Management. It would bring in up to $750 million.
Credit Suisse also considered selling a stake in its advisory business, which helps companies close deals and raise funds, according to Bloomberg News. It could be the rebranded First Boston, but again, it’s a service that’s tied to its super-rich clients, so only a minority stake sale seems possible. The unit has about $2.3 billion in capital and produces a 13% return, according to JPMorgan’s Abouhossein. Assuming that equity is essentially its book value, these returns suggest a market valuation of $3 billion, so a 25% stake brings in $750 million. The business is not simple enough to operate easily as a partial public listing as asset management might, so it is better suited to a large private investor who would have limited ability to resell their stake.
Next is SIX Group, in which Credit Suisse has a 15% stake, according to a statement from the company. The parent company of the Swiss stock exchange is privately owned by a multitude of Swiss and foreign banks. Using SIX’s operating profits after taxes and a multiple of 20 times the earnings price, according to Deutsche Boerse and several US stock companies, that stake could be worth close to $600 million.
An easier – and quite obvious – thing to sell is Credit Suisse’s 90% stake in Mandarin Oriental Savoy Zurich. This is not the 19th century; a serious bank doesn’t have to own a trophy hotel. It’s worth around $400 million, according to reports. He just sold his 8.6% stake in Allfunds Group, a publicly traded technology company that produces data, analytics and research for wealth managers. The rise and fall of its stock price added distracting volatility to Credit Suisse’s earnings. This participation brought in 330 million dollars. Finally, there is Credit Suisse’s small Swiss finance and leasing company, Bank Now AG, which has equity of nearly $300 million. I’ll just factor it in at its capital value.
It all adds up to some serious potential value. There are other possible sales, but with very little information, it is difficult to quantify what they could bring. Of course, these are approximate figures; buyers might be willing to bid a lot more or a lot less depending on the competition.
But the bottom line is that Credit Suisse has options. And if he really needs more money, Bloomberg News is reporting a possible convertible bond issue — as I proposed last month. This should cover the remaining costs to bring about the change the bank desperately needs.
More from Bloomberg Opinion:
• Credit Suisse’s Gulf suitors must be smarter: Anjani Trivedi
• Bonds will determine the next leg of the equity bear market: Jonathan Levin
• Credit Suisse isn’t the Lehman moment you’re looking for: Paul J. Davies
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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