Credit Suisse Group AG (CS) is considering the sale of a part of its German wealth management unit to reduce expenses in its onshore businesses in Western Europe. The strategic sale is part of the bank’s efforts to reorganize its business by developing core businesses and downsizing troubled units.
After combining its private bank with its asset management wing last year, Credit Suisse has been consistently striving to improve its market position in the intensely competitive European market. Management expects such measures to drive the company toward its desired performances.
The aforementioned sale is a part of the Swiss bank’s strategy to achieve CHF1.9 billion in cost reduction by the end of 2015. A major chunk of these expense savings, totaling CHF750 million, will be from the private banking unit.
Currently, many global banks are struggling to reduce costs amid the sovereign debt crisis in Europe. Among others, Credit Suisse is resorting to extensive restructuring measures to address low profitability. Notably, the bank faced huge headwinds in the private banking segment in 2012, with a declining margin caused by decreased client activity.
To mitigate these headwinds, in Nov, 2012, the company announced 300 job cuts in the bank’s retail and private banking divisions in Switzerland starting Jan 2013.
Similar Action by Other Banks
Given a pressured operating environment, lower returns and stringent capital norms, many Swiss banks are rightsizing their businesses. In Sep, 2012, as part of its integration process and cost reduction efforts, Julius Baer Group Ltd. (JBAXY) announced 30%–40% reduction in workforce at its recently acquired foreign wealth management division of Merrill Lynch − a unit of Bank of America Corporation (BAC).
Later in Nov 2012, another Swiss banking giant UBS AG (UBS) slashed 10,000 jobs, out of which 2500 in Switzerland itself. UBS has been reducing the workforce in its investment bank unit over the past one year and aims to refocus on building its market-leading wealth management and asset management business.
As a near-term economic recovery appears bleak, banks are increasingly adopting precautionary measures to maintain a sound capital buffer for withstanding any future financial crisis.
Overall, until revenue generation gathers momentum, a worsening cost-to-income ratio will keep compelling more banks to opt for asset sales and job cuts to boost both profitability and capital ratios.
Credit Suisse currently carries a Zacks Rank #2 (Buy).
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