Credit Suisse Group AG (CS) is on its path to acquire the wealth management division of Morgan Stanley (MS) located in Europe, the Middle East and Africa region. The acquisition will comprise assets worth $13 billion and comes as a strategic move to offset Credit Suisse’s vulnerability to the uncertainties of investment banking. The deal is expected to be completed by the end of 2013.
This acquisition will mark Credit Suisse’s first noteworthy deal following its acquisition of Brazilian investment fund Hedging-Griffo in 2011. However, the details of the deal have not been disclosed.
Being the 5th largest bank in the world, Credit Suisse possesses an approximate $843 billion under its management, indicating that the assets acquired from Morgan Stanley are relatively modest. Credit Suisse’s assets are vulnerable to fluctuations on a daily basis mainly due to irregularities in the market and continuous changes in foreign currency. Thus, it is investing in wealth management considering the fact that revenue generation from this segment is stable compared to investment banking.
Another firm, UBS AG (UBS) has increased its focus on private banking. In Oct 2012, it began reducing its exposure to fixed-income investment banking. Likewise, Credit Suisse is striving to reduce costs associated with private banking operations, which it intends to achieve by 2015.
In 2011, Credit Suisse acquired a private bank named Clariden Leu. Following the integration, Credit Suisse allowed Clariden Leu to operate separately. However, some customers of the bank withdrew their money from Clariden Leu following the integration.
Recently, Swiss Banks received a lot of flak for helping overseas investors avoid paying taxes. Due to this, Credit Suisse’s European customers withdrew their deposits, inducing huge monetary outflow.
Further, the offshore accounts of Credit Suisse’s private banks are being reviewed by U.S. investigators. Owing to this, in 2011, Credit Suisse made a provision of 295 million francs.
Of late, Credit Suisse has become a cautious acquirer. It is primarily focused on its capital raising plan by selling its exchange-traded fund (ETF) business to BlackRock, Inc. (BLK). Further, the company is trying to raise its profits by incorporating changes in its overseas wealth operations.
Credit Suisse currently retains a Zacks Rank #5 (Strong Sell), whereas Morgan Stanley currently holds a Zacks Rank #2 (Buy).
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