Credit Suisse is considering dividing the investment bank into three

Credit Suisse has laid out plans to split its investment bank into three and revive a pen-holding “bad bank” for risky assets, as the Swiss lender attempts to emerge from three years of relentless scandals.

Under the proposals submitted to the group’s board of directors, Credit Suisse hopes to sell profitable units such as the securitized products business in an effort to avoid a harmful capital increase, according to people familiar with the plans.

President Axel Lehmann named Ulrich Koerner as CEO in the summer with a briefing for a radical change to the bank, which has been hit by a corporate espionage scandal, mutual fund closures, record trading losses and a series of lawsuits. In the last years.

The board and the executive team plan to unveil the new strategy – which is expected to include thousands of job cuts – in the bank’s third-quarter results on October 27.

Recent proposals under consideration will see the investment bank split into three parts: the group’s advisory business, which can be separated at a later time; a troubled bank to hold high-risk assets that will be disposed of; And the rest of the business.

“We said we will update the progress of our comprehensive strategy review when we report third-quarter earnings,” Credit Suisse said in a statement. “It would be too early to comment on any possible outcomes before then.”

At an indoor town hall this month, Credit Suisse directors Michael Klein and Blythe Masters suggested the company could offer investment bankers an ownership stake in the company, which was seen as heralds of separating the department. The idea was first reported by Bloomberg, which also said the board is considering revamping its first Boston brand for the investment bank.

While both ideas have been floated, they are not seen as a priority, according to people with knowledge of board thought.

The board discussed reviving the strategic decision unit to bring together high-risk assets and non-core businesses that do not fit with its new strategy to focus on wealth management, say the same people.

The SRU – which was used during a previous strategic reorganization under former chief executive Tidjan Thiam – will allow the bank to weed out problematic positions and also keep a business, such as the securitized products unit, which has been earmarked for its disposal.

Selling the New York-based securitized products business — which aggregates debt such as mortgages and yacht loans, and then sells them as securities — would reduce the bank’s capital obligation but also deprive the bank of one of its most profitable lines of business. .

Last month, Deutsche Bank analysts said the investment bank’s downsizing costs would leave a CHF4 billion ($4 billion) hole in the group’s capital position due to costs of restructuring, growing other business lines and boosting capital ratios.

“Managing other parts of the investment bank and selling smaller businesses across divisions can help over time, but it will likely come too late to avoid a stock rally,” Deutsche analysts Benjamin Joy and Sharat Kumar Ramanathan wrote.

But according to people involved in the internal discussions, the bank’s hierarchy is desperate to avoid going to market for funding due to the group’s low share price, which has fallen below CHF5 in recent weeks, its lowest level in at least 30 years. The bank is trading at a book value, a measure of net assets, of 0.28, which is significantly lower than its rival UBS, which is trading at 1.

Last month, Credit Suisse was subjected to a series of cuts by credit analysts, driving up borrowing costs.

The bank is also finalizing plans for thousands of jobs, which could affect more than 10 percent of its 45,000 global workforce, according to people familiar with the plans.

Video: Credit Suisse: What next for the bank affected by the crisis? | FT . movie

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