It’ll Take More Than a Buyback to Boost Credit Suisse

Swiss bank has completed a three-year restructuring plan without properly answering the question: What next?

Credit Suisse CS -1.31% may have finished three years of restructuring, but its investment story is a work in progress.

The Swiss bank unveiled a welcome plan to buy back at least 2 billion Swiss francs ($2 billion) of stock over two years as part of an investor day. But investors shrugged, with the shares up little more than 1%.

That leaves the stock down 40% over three years. Of major investment banks, only Deutsche Bank has done worse. Sure, markets aren’t great, but investors don’t yet value Credit Suisse’s promises.

The restructuring dealt with many of Credit Suisse’s problems and the bank is confident of hitting a 10% return on tangible equity next year, whatever happens in markets. That would be up from 7% as forecast by analysts for 2018.

But Credit Suisse remains too exposed to trading activity in financial markets and to riskier elements of investment banking, specifically making loans to companies backed by private equity and its securitization business.

The bank’s restructuring aimed to boost wealth management versus investment banking and to increase the share of recurring revenue versus commissions and transaction fees.

A Credit Suisse bank in Geneva, Switzerland. Photo: denis balibouse/Reuters

But the needle has barely moved since a 5-percentage-point shift in favor of recurring revenue between 2015 and 2016. That shift came from the bank cutting a large chunk of its old debt-trading businesses and engineering a step-up in interest income at its wealth business, partly by charging its own investment bank higher rates for internal funding.

Credit Suisse’s exposure to leveraged loans—the risky debt used in private-equity deals—remains a worry. This business relies on being able to shift debt quickly on to other investors. Regulators are becoming more concerned about the illusion of reliable liquidity in this overheating market.

Credit Suisse is a better bank than it was, but still relies more on volatile investment banking and markets than crosstown rival UBS. With markets jittery and debt looking risky, it is easy to see why investors prefer the other Swiss bank.

Write to Paul J. Davies at
